Analysis on Different Organizational Structures
CHEN Aizhong
School of Management, Shandong University of Finance, P.R.China, 250014
Abstract: With the development of management science, various organizational structures have come
into existence. This article is trying to give a brief analysis to different organizational structures and to
find their advantages and disadvantages in order to give instructions to different organizations on which
structure is suitable and effective to them.
Key words: organizational structure, centralization and decentralization, internal and external
environment
An organization is an organic whole in which two or more people cooperate for a common goal.
Management comes along with the establishment of an organization. Henri Fayol believes that
management consists of five elements: plan, organize, command, coordinate and control. The core of
management lies in effective allocation of different categories of sources within the organization to
accomplish its goal. With the development and application of management theory, multiple
organizational structures have come into being. An organization is an open and complex system, which
interacts with the multiple environments. It must make proper adjustments to its goal and functions and
transforms itself in accordance with the changes of external environment and internal conditions for the
purpose of survival, development and expansion. With the giant stride of the world economy,
enterprise’s environment is undergoing rapid changes, which forces the organization to make constant
innovation and seek new competitive advantages, thus producing a variety of management theories and
practices concerning organizational changes.
1 Several typical organizational structures
1.1 Line structure
Factory Director
Workshop Director
Group Head
Workshop Director
Group Head
Group Head
Group Head
Figure 1 Line Structure
As the earliest developed organizational form, line structure is simple with only line positions and
line power. Its basic characteristic is that all the enterprise’s managerial operation is directly commanded
and managed by the highest management without special functional departments. The organization is
hierarchized. Position and power are in a bottom-to-top ascending order. The superior has all authority
to give orders directly to his subordinate; the subordinate reports to and accepts orders from his direct
superior. This organizational form uses least number of managerial personnel with low management cost
and simple commanding system. The top manager has absolute authority and is quick in making
decision. In addition, commands are unified and there is a clear definition about responsibilities, rights
and benefits of each position, which is conducive to supervision and control of subordinates. Its
disadvantages are obvious: The organizational structure lacks elasticity; executives have supreme power,
which easily brings about bureaucracy. And it lacks flexibility, which will cause great loss once a wrong
decision is made.
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1.2 Functional structure
General Manager
Functional Dep. 1
Functional Dep. 2
Workshop director
Functional Dep. 3
Workshop director
Functional Group
Group Head
Functional Dep. 4
Workshop director
Functional Group
Group Head
Group Head
Figure 2 Functional Structure
Russel Ackoff was the first to put forward functional structure and put it into trial practice: on the
principle of division of responsibility, form functional departments within the organization and assign
corresponding administrators to take charge. Within their business scope, these functional departments
have the power to give orders and direction to their subordinates. Therefore, the subordinating
administrators shall submit themselves not only to their superior administrative management but to their
superior functional departments as well. The leading advantage of functional structure lies in that it is
able to bring experts into full play and make up for the deficiency of the leadership of administrators at
all levels. Its disadvantages are that multiple leadership levels will interfere with the centralized and
unified command, go against the clear division of the responsibilities and authority on the part of every
administrative manager and each functional department. Besides, each functional department
emphasizes the importance of their own department, which will cause conflicts between departments.
1.3 Line and functional structure
By line and functional structure, it is meant that necessary functional department is established at
each management level within a line-structure organization for the purpose of assisting the managerial
personnel at this level. On one hand, the administrators at each level have corresponding functional
departments as assistant so that they can play an important role in professional management and reduce
errors in decision-making. On the other hand, within each managerial organ, centralized and unified
direction and management are maintained, thus raising the management efficiency. The deficiency for
this structure lies in the difficult coordination between functional departments and addition of
managerial personnel and operational cost. Generally speaking, line and functional structure is suitable
to the organizations which are small in scale, unitary in production and centralized in one area.
General Manager
Functional Department
Functional Department
Workshop Head
Workshop Head
Functional Group
Functional Group
Group Head
Workshop Head
Group Head
Group Head
Figure 3 Line and functional structure
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1.4 Multidivisional structure
A typical structure of decentralization, multidivisional structure has become a commonly adopted
organizational structure by extra large enterprises and multinational enterprises. Its features are like this:
Establish business divisions according to the products that enterprises manufacture or different
production bases. These business divisions are independent profit centers, which, under the leadership of
head office, carry out the system of independent economic accounting and sole responsibility for their
profit and loss. The advantages of this structure are that it has improved the decision-making structure of
the organization and reduced the size of accounting unit, which is helpful to large enterprises in
disintegration, decision-making management, stimulating the enthusiasm of each divisional department
and coordinating the contradictions between coalition and specialization. The disadvantages of this
structure are as follows: From the point of view of the whole enterprise, the repeated establishment of
functional departments will increase operational cost; ineffective control will cause independent
divisional departments to develop into “small companies”. In addition, the inappropriate strengthening
of the departmental interest will bring about a situation in which each department works for itself, and
coordination becomes difficult and the overall strategic goal of the company is hard to accomplish. On
the whole, multidivisional structure is most suitable to large, multi-sectional and interregional
enterprises. For example, General Motors Corporation adopts this organizational form.
General Manager
Functional Dept
Functional Dept
Business Division
Functional Dept
Business Division
Business Division
Functional Dept
Functional Dept
Factory
Functional Dept
Factory
Factory
Figure 4 Multidivisional structure
1.5 Matrix structure
Within the line and functional structure, add a horizontal project management system, thus forming
a matrix. In order to complete a project, concerned personnel are transferred from functional divisions to
form project department, which includes different kinds of professionals who are to work together for a
specific project. When the project is accomplished, the professionals will be assigned different roles and
the project department will come to an end. Each project leader will be under direct leadership of the
factory director. Project members are under the leadership of both project leader and those of their
original functional departments. They are linked with original functional departments in organization
and business.
General Manager
Functional Dept
Manager of
project A
Functional Dept
Functional Dept
Functional Dept
Members of project team
Manager of
project B
Members
of project
teamsuch a structure, members will
Matrix structure is not a long-term organizational
structure.
Within
Figure 5 Matrix structure
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be led by two executives. This structure is flexible in personnel arrangement and well adaptable to
changing. Grouping different departments and professionals together will give full play to technical
specialists’ merits, improve techniques and management and benefit the development and research of
new technology and new products. This structure has its deficiencies, that is, it has poor stability and
unclear responsibilities and power. Members are under double leadership. When contradictions occur
between departments at different levels, management order will be in chaos, which will affect
organization efficiency.
Compared with traditional structures, matrix structure is preferred by team members. They say that
this structure facilitates the establishment of good relation and accomplishment of project. Besides, R.
Anderson points out that matrix structure is more helpful to decentralization, authorizing power to
members, doing well in customer services and more effective in accomplishing goals. To accomplish a
project, the specialists in functional departments are transferred to a certain specific project to form a
project team, thus making full use of different resources, expertise and experience and greatly increasing
efficiency.
2 Essentials for organizational structure design
Three elements have influences on the design of organizational structure: environment, strategy
and technology.
2.1 Environment
Environment involves two parts: general environment and specific work environment. The
complexity and changeability of environment determines its uncertainty. The design of organizational
structure is closely related to the uncertainty of its environment. For departments with definite
environment, the design of organizational structure may use the mechanic structure that is relatively
stable. While for industries and departments with changing environment, the flexible organic structure is
preferred.
2.2 Technology
Technology in this context refers to the process in which raw materials are finally turned into
finished products or intelligence and mechanical force of service. Generally, it falls into three categories:
jobbing work, mass production and long-term continuous production. Therefore, organizational
structures shall be designed to suit the characteristics of technology.
2.3 Strategy
Strategy refers to the overall objective that decides the nature and fundamental direction of
organizational structures. Successful strategy of an enterprise is the key to facing market competition
and sustainable development. In different stages, enterprises shall use different strategies as well as
organizational structures corresponding to them.
Reasons for organization changes
An organization must, depending on changes of external environment and internal conditions,
make appropriate adjustments to its objective and functions and constant changes for survival,
development and expansion. Organizational changes refer to the practice of an organization to make
timely adjustments to its structure and functions in accordance with the changes of external environment
and internal conditions so as to increase its competitiveness for survival and development.
3 Changes in strategy and organizational structure
A. D. Chandler, American scholar, is the first to make a study of the relationship between strategy
and organizational structure and publishes a book entitled Strategy and Structure: Chapters in the history
of the Industrial Enterprise, in which he studies the history of 70 companies, especially some American
large companies such as Dupont and General Motors Corporation. He discovers that in the early stage
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companies like Dupont tends to build centralized organizational structure, which is especially suitable to
produce and sell limited products. When these companies add new product lines, purchase advanced
industry and build their own distribution system, enterprises seem too much complex for highly
centralized structure. In order to maintain the effectiveness, organizations must reform. Therefore, he
believes that organizational structure must comply with strategy and any change in strategy will cause
modifications to organizational structure.
Gilbreth and Gail Carson put forward more specific guiding principles to better combination
between strategy and structure:
1. For companies focusing on one single business or owning a leading business, functional
structures are preferred.
2. Companies dealing with correlated products or a variety of services shall adopt multidivisional
structure.
3. Companies dealing with non-correlated products or a variety of services shall take compound (or
H-form) structure.
All in all, to effectively carry out a new strategy needs either a new organizational structure to
match it or to reform the organization to form new suitable organizational structure. Enterprises shall not
formulate their strategy in accordance with external environment and then regulate their original
organizational structure based on the newly-formulated strategy.
References
[1] Arthur A. Thompson, Wilianm E. Fulmer, A. J. Strickland III. Strategic Management (Fourth edition),
published by Irwin Publishing House, 1992.
[2] Peter M. Senge. The Fifth Discipline, published by Doubleday, New York, 1994.
[3] Paul W. Beamish. International Management, published by Irwin Publishing House, 1991.
[4] Zhou Jianlin. Management Textbook, published by Shanghai University of Finance & Economics Publishing
House, 2001.
The author can be contacted from e-mail : pxzxchen@126.com
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