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Definition of Organizational Structure Forms Of Organization Structure Line Organization Structure Staff Organization Structure Functional Organization Structure

Organizational Structure refers to the differentiation (differences in the orientations among the managers if different departments and differences in formal structure among these departments) and integration (quality of the state of collaboration for achieving unity) of activities and authority, role and relationships.

Organisation Structure refers to the pattern of relationships among individuals and department in an organisation Organisation Structure is the framework through which the organisation operates. Classification of organisation structure is based on various activities which are grouped together to create departments and units & prescribing their relationships in the organisation.


structure also refers to the well defined jobs, each bearing a definite authority, responsibility and accountability. Four pillars of Organizational Structure
Division of Labour Scalar and functional processes Structure Span of control

There are 7 types of Organisation Structure Line Line & staff Functional Divisional Project Matrix Free-form

Line Organisation Structure

Lines of authority and instructions are vertical, i.e. they flow from the top to the bottom.

The unity of command is maintained in a straight and unbroken line. It implies that each subordinate receives instructions from his immediate superior alone and is responsible to him only.


persons at the same level of org. are independent of each other. structure specifies responsibility and authority for all the positions limiting the area of action by a particular position holder.


Line & Staff Organisation Structure

Refers to a pattern in which staff specialists advise managers to perform their duties.

Staff managers provide advice to the line manager who are generally specialists in the field. Staff positions are purely advisory in nature. They have a right to recommend but have no authority to enforce their preference on other dept.
The line executives are the DOERS or commanders, where as, the specialists are the THINKERS or advisors.






Manager Production Production Engg. Foreman Workers

Manager Marketing Sales Officer Sales Supervisors


ADVANTAGES Planned Specialisation Quality Decisions Prospect for Personal Growth Training Ground For Personnel DISADVANTAGES Lack Of Well Defined Authority Line & Staff Conflicts Suitability Not suitable for small org. as it is quite costly for them.

Functional Product



Flat Structure Vertical Structure Matrix Structure

Functional structure is created by grouping the activities on the basis of functions required for the achievement of organizational objectives. Functions are classified into Basic(essential: e.g. production, marketing, in manufacturing organization), Secondary(subparts :e.g. marketing is further divided into market research, advertising, salesetc) & Supportive (e.g. finance, accounting, personnel, industrial relations)functions according to their nature and importance. Authority relationships in functional structure may be in the form of line, staff & functional.

Head Quarter









Clark Johnson CEO

Exec. V.P. Finance & Admin.

Senior V. P. Stores

Senior V.P. Logistics

V.P. Tax

V.P. Controller

V.P. Distribution


Director Corp. Planning

Director Transportation

Characteristics of functional structure:

1. 2. 3. 4. 5.

Specialization by functions Emphasize on sub goals Pyramidal growth of the organization

Line and Staff divison

Functional authority relationships among various departments. Limited span of management and tall structure.



Result into high degree of specialization Brings order & clarity in the org. Promotes professional achievements, provides satisfaction to the specialist. Resources can be saved High degree of control and coordination of functions.


Judging the performance of each dept is difficult. Slow Decision Making process Lack responsiveness necessary to cope up with new & rapidly changing work requirements. Offers usually line & staff conflict & interdepartmental conflict and results in inefficiency.


Required when small org. grows & business activities become more & more complex. Works better if org. has one major product or similar product line.

A division is a collection of functions working together to produce a product.

Divisions create smaller, manageable parts of a firm.

Divisions develop a business-level strategy to compete. A division has marketing, finance, and other functions. Functional managers report to divisional managers who then report to corporate management.

Product structure: divisions created according to the

type of product or service. Geographic structure: divisions based on the area of a country or world served. Market structure: divisions based on the types of customers served.

CEO Corporation

Corporate Managers

Washing Machine Division

Lighting Division

Television Division

CEO Corporation

Corporate Managers

Northern Region

Western Region

Southern Region

Eastern Region

CEO Corporation

Corporate Managers

Large Business Customers

Small Business Customers

Educational Institutions

Individual Customers

Product departmentalization involves the grouping of all activities necessary to manufacture a product or product line. Preferred for product expansion & diversification when manufacturing & marketing characteristics of each product are of primary concern.
Used when the product is relatively complex & a great deal of capital is required for plant and facilities. Each product division contains the functions necessary to that service the specific goods or services it produces


Func. Managers
Sales Design Production




= Product Team Manager

= Team member


Coordination within product lines made easier More adaptable to changes in environment (e.g., can shut down a division when a product is no longer selling) Responsibility for failures, successes identifiable Competition across divisions can serve as a motivator


Redundancy of functions across divisions (e.g., marketing, R&D) Competition for resources, power

Lack of development of expertise in functional areas

FLAT STRUCTURE reduces the levels of management. Widens span of control of management at various levels of organisation.

More decentralized with regard to decision-making

ADVANTAGES: More delegation of authority More clear policy Development of managers for higher positions because of their initiative & authority to make decisions. DISADVANTAGES: Tendency of overloaded superior to become bottlenecks in decision making Requirement of highly trained managerial personnel.

Tall structures have many levels of authority relative to the organizations size.

Flat structures have few levels but wide spans of control.

As levels in the hierarchy increase, communication gets difficult. The extra levels result in more time being taken to implement decisions. Communications can also become garbled as it is repeated through the firm.

Results in quick communications but can lead to overworked managers.

Narrow span of control Large number of management levels

More centralized decision making

ADVANTAGES: Close Supervision Close control of subordinate activities Fast communication between superior & his subordinate DISADVANTAGES: Creation of many levels of management High cost to the organisation Excessive distance between lowest level & highest level in the organisation.

Matrix Organization

In a matrix organization a vertical as well as lateral communication and information flow is allowed. The matrix organization integrates functional responsibility with product responsibility. It is a combination of the functional and the product org. structure.

A product manager is responsible for the total performance of the product and
Will have the production manager, the marketing manager, the accounts manager as his counterparts in the manufacturing, marketing, and accounting functions respectively.

These functional managers report to the functional head vertically and product manager laterally.
MOS is used in big companies having diverse business activities The structure enjoys the advantages of a functional as well as of a product organization.

Matrix structure: managers group people by function

and product teams simultaneously.

Results in a complex network of reporting relationships. Very flexible and can respond rapidly to change. Each employee has two bosses which can cause problems.

Functional manager gives different directions than product manager and employee cannot satisfy both. Product Team Structure: no 2-way reporting and the members are permanently assigned to the team and empowered to bring a product to market.

CEO Func. Managers Sales Design Production

Team Managers

Product team A Product team B Product team C

Product Team

= two boss employee


Func. Managers
Sales Design Production




= Product Team Manager

= Team member

Many large organizations have divisional structures where each manager can select the best structure for that particular division.

This ability to break a large organization into many smaller ones makes it much easier to manage.

One division may use a functional structure, one geographic, and so on.

Design Of Matrix Structure

In MOS, a project manager is appointed to coordinate the activities of the project. A subordinate in matrix structure may receive instructions from two bosses. Matrix superior has to share the facilities with others. He reports in a direct line to the up, but does not have a complete line of command below.

MD Manufacturing Finance Personnel Material

Product Manager-A Product Manager-B

Production MGR-A ProductionMGR-B

Finance Mgr-A Finance Mgr-B

Personnel Mgr-A

Material Mgr-A

Personnel Mgr-B

Material Mgr-B

Advantages of the matrix organization

It attempts to retain the benefits of both structures ( functional organization and project organization). Coordinates resources in a way that applies them effectively to different projects. Staff can retain membership on teams and their functional department colleagues.

Disadvantages of the matrix organization

Potential for conflict between functional vs. project groups. Greater administrative overhead. Increase in managerial overhead