ORGANIZATIONAL STRUCTURE

Introduction

It is a hierarchical organizing and arranging outlines, based on various factors, the divisions and positions of an organization to help to achieve its strategic objectives.

Subsequently, the authorities, workflow, communications, rights and responsibilities are outlined.

Usually, it is illustrated in charts called "Organizational Structure Chart" and communicated to the organization team members to facilitate gaining organizational structure benefits.

The key factors to be considered when selecting and tailoring an organizational structure includes but no limited to:

• the organization size
• the industry which the organization works in
• the organizational objectives

These factors identifies sub factors which includes but not limited to:

• the required chain of command
• the required span of control
• the required centralization
• the required mechanistic or organic nature of the organizational structure.

The selected organizational structure must be flexible to adapt the changes in business and organization requirements which are dynamic in nature.

The organizational structure leads to catastrophic results if it is:

• outdated.
• not designed to fulfill the business and organization requirements and objectives.
• not correctly implemented.

The selected and tailored organizational structure should be able to:

• outlines how information flows between levels.
• outlines how the roles distributed and organized.
• outlines how the authorities, accountabilities and responsibilities are assigned.
• outlines how activities are directed.
• outlines the decision making power span (centralization span).
• enables companies that sell multiple products to an entities that are structured based on products.
• enables multi located companies to structure based on geographical distribution.
• enables to plan and control salary grades and position ranges.
• enables appropriate response to changes in enterprise environmental factors as it is flexible to be changed, and vice versa.
• makes activities and operations more efficient and effective as it is suitable to them, and vice versa.
• positively affects the organizational performance efficiency and effectiveness as it is suitable to the organizational system.

Organizational Structure Types

1. Organic or Simple:

It is an organizational structure that is flat with few layers.

In Organic-Mechanistic Spectrum, this type "Organic Organizational Structure" is the only structure falls at the Organic end. All other type fall at the mechanistic end or in between.

The majority of communications are horizontal.

It has low department specialization, so specialized members are shared or frequently transferred to where most useful.

It is decentralized, so:

• all organization team can participate in a decision-making.
• decisions can be made within a department.

It is flexible (easy to be changed), so it can well adapt changes in structure, objectives, responsibilities, processes, members, etc.

This structure is used in organizations that face unstable environments where the business needs to quickly adapt changes to stay competitive in the market. It is commonly used in programing organizations and online business organizations such as Facebook and Google.

It strongly requires an efficient and effective information management and team members have strong problem solving skills.

It is one of latest in business world. It is also known as "Simple" or "Flat".

2. Functional:

It is an organizational structure that divides the organization into departments based on specialty, such as engineering, manufacturing, finance and HR. Each department is subdivided on the same basis.

The majority of communications are vertical.

It has high department specialization as its dividing criteria is based on specialty. Each department is specialized in major discipline such as engineering, costing, procurement, risk, quality, etc.

These departments are referred to as "silos" because they operate in high independence.

It is centralized, so have a clear chain of command and decisions are made by employees at high layers only.

It is inflexible (difficult to be changed), so it is difficult to adapt changes in structure, objectives, responsibilities, processes, members, etc.

It is used by organizations that produces one or similar products in a stable business environment such as military, universities, hospitals, factories, etc.

As it has high department specialization and is inflexible, the department team members should be well qualified by training the hired employees or hire qualified ones.

It is the oldest and most common structure.

It is also known as “Traditional”.

3. Matrix:

It is an organizational structure in which the reporting relationships at lower layers are set as two dimensions matrix rather than in one dimension hierarchy (Functional dimension and Projects dimension).

Each dimension is a complete hierarchy that has number of layers.

Employees have two reporting relationships that to a functional manager (e.g. department manager) (mostly illustrated vertically) and to a product manager (e.g. project manager, sustained development manager, item production manager) (mostly illustrate horizontally).

Matrix structure is categorized into three categories based on the strength of functional reporting relationship and product reporting relationship as follows:

• If the functional reporting relationship is stronger than the product reporting relationship, the structure is called week matrix organizational structure.
• If the case is the opposite, it is called strong matrix organizational structure.
• If they are almost equal, it is called balanced matrix organizational structure.

The availability of functional dimension brings, for projects, the highly skilled employees from the different departments rather than hiring new experienced people for projects.

The availability of projects dimension provides the dynamic nature of projects and the rapid market changes adaptation to the functional dimension.

Each dimension may or may not be centralized; so, to avoid contradictions:

• the centralization level should be lowered as much as possible in both dimensions.
• the chain of command of each dimension should carefully be developed and frequently revised.

In most cases, the functional dimension is inflexible (difficult to be changed) and the other dimension is flexible (easy to be changed) and mostly temporary.

Control competition may appear between managers of the two dimensions over the mutual inferiors. This competition consumes efforts and decrease the morale of the employees at low layers team.

It has a risk of miscommunication through the complex communication channels.

If business declines, it is difficult to identify the failure root causes as:

• functional and product managers shirk by blaming each other.
• teams shirk by blaming multi boss system.

It is used by organizations that have multiple departments that share authoritative responsibilities (i.e. different departments have authority to issue the same command type to the same team). An example of this is a cars factory that uses engineers and technicians from various functional departments to perform projects for:

• modifying the existing production lines.
• upgrading the current car model to produce a new car model.

The long communication of the functional dimension is eliminated by the projects dimensions.

For the employee level:

• The employees from each dimension develop new skills by working with the other dimension.
• The project employees are free of the termination threat.

4. Project-oriented:

It is an organizational structure that divides the organization into departments based on its portfolios, programs and projects (product departments) beside enabling departments (e.g. HR, Accounting, Procurement, logistics, etc.) that provide shared support services to the product departments (all projects).

All the activities in organization are directed to serve projects.

The majority of communications are vertical through very clear chain of command.

Specialization in each project team are various. Each team has multiple specializations such as engineering, costing, procurement, risk, quality, etc.

At project level, project manager:

• has a full authority to make decisions on project resources.
• has no authority to make decision on the organizational aspects that related to his project such as project objectives, organizational requirements, organizational constraints and increasing the project budget. These aspects are clearly determined before the project start.
• has a conditional authority to decide on shared resources.

It cannot be described absolute centralized or decentralized as some decisions are made at:

• high levels (i.e. executive, portfolio or program level) such as project objectives, business case, project finish date and increasing the project budget.
• project levels such as project risks, project communication, project resources and project schedule as long as not affects organizational constraints.

It is flexible (easy to be changed), as projects are temporary.

It is used by organizations that produces all its products through projects. Mostly the customers are external to the organization.

During a project execution, the loyalty of the project team to its project usually is high. This creates many risks that must carefully be monitored and managed. Examples of these risk:

• The project team gives precedence to project goals over the organizational goals.
• The project team gives precedence to project requirements over the program dependency requirements that implied by the program management.

As the organization produces all its products through projects which are of temporary nature, the project team shall get released at project end unless they are participating in other projects or relocated in another one. This creates insecurity sense among the team members as they know there is a possibility to lose their jobs at the project end.

Due to working in different projects and studying lessons learned from previous projects, the team members become versatile, flexible, dynamic and efficient.

Working environment is stressful as projects have mandatory constraints and stringent schedules.

Usually, small organizations can be projectized organizations; and as they grow, they tend to take characteristics of a strong matrix organization.

It is also known as "Projectized". By the way, up to the end of 2020, the word "projectized" did not appear in English dictionaries.

5. Virtual:

Virtual Organizational Structure:

It is an organizational structure that organizes a virtual organization that comprised of network structure. This structure depicted by nodes and links between the node. Each node is a point of contact with other people in the network.

Virtual Organizations

A virtual organization is an organization or department that consists of members, known as virtual team, that joined through IT communication system to work together to deliver specific objectives.

Mostly, the employees of virtual organization are geographically apart but they can work as one team using emails, videoconferencing, instant chatting, phone answering services, etc.

Virtual organizations can have any organizational structure type (including the virtual structure) as per its business requirements; but tend to have fewer layers and less centralization.

The costs of operating a virtual organization are much less than a traditional organization. For instance the cost of virtual office is almost Zero compared to the cost of maintaining and operating a physical office.

The low cost made this organization type is common among small businesses and startups. Moreover, it is also increasingly utilized by big organizations in existing or new departments.

Virtual organization are decentralized, so:

• all organization team can participate in a decision-making.
• decisions can be made within a department.

Virtual organization arrangements expand the:

• job options for employees.
• hiring options for business owners.

Virtual organizations can also lead to greater productivity with instantaneous response, as the teams are free from many constraints such as administrative tasks and commutes.

As communication is a key success measure in virtual organizations, clear and strict communication policies and strong monitoring for communications are required.

Virtual organizations face IT issues which can affect its performance such as accessibility issues, cyber security issues, storage size availability, etc.

Team building is difficult to be established among virtual team members.

Scheduling the day to day work may be difficult as the virtual team members may be located in different time zones and working as per different working hours.

6. Hybrid:

It is an organizational structure that divides the organization into departments applying on each department a different organizational structure type according to the department business requirements.

Each department will have the characteristics of its own organizational structure.

Unlike multi-divisional organizational structure, departments do not have autonomy. So, Head Office level directly manages the departments as per the business requirements.

It helps business to run more efficiently and increase productivity as each department has its suitable organizational structure.

7. Multi-divisional:

It is an organizational structure that divides the organization, based on products, industry, geography, etc. into several semi-autonomous divisions.

At Head Office level, divisions are guided, monitored and bounded by organizational objectives.

It is used to enable better focus, control and efficiency on the business of each division.

Examples of dividing categories are:

• produces different products (e.g. diaries, bicycles and mobile phones).
• providing different services (e.g. Insurance, education and advertising).
• multi located e.g. (Africa, Europe, Middle East, Eastern Asia).

Each division represents an organization with an independent organizational structure and management as suitable for the division business.

Generally, the head office provides support for the divisions such as:

• managerial expertise
• fund (It is not obligatory responsibility. Head office may provide fund, may just fund insurance or may nothing)
• coordination
• organizational objective (which must be repeatedly cascaded and reminded)
• profitability monitoring (without interfere in fund utilization at division levels)

The first level below the Head Office, which represents the divisions, is inflexible to changes, so it is difficult to adapt changes in structure, objectives, responsibilities, processes, members, etc.

Each division will have the characteristics of its own organizational structure.

As some functions may be replicated for each division with little centralization, this type is may be costly specially for small organizations or ones has limited profitability.

Organizations uses this type develops an inter-divisions communication system to share the knowledge.

8. PMO:

PMO refers to one of the followings:

• Project Management Organization.
• Program Management Organization.
• Portfolio Management Organization.

Each one represents a department within the organization that manages its focus (projects, program or portfolio).

They all serve projects delivery, from strategic planning to handing over, but from different points; so, they should work in total alignment and maximum coordination.

Small organizations merges one or more of these offices.

These offices can have any organizational structure type as per its business requirements.