Unit 5: Organizing
Activity 1: Traditional Organizational Structures
What is organizing?
Organizing is the process of bringing people and resources together to work toward a goal.
Organizing creates structures to divide up the work, arrange the resources, and coordinate activities.
Organizing identifies who does what, who is in charge of whom, and how different parts of the
business relate to and work with one another. Organizing is one of the four fundamental functions of a
manager along with leading, planning, and controlling.
What is Organizational Structure?
An organizational structure is a formal arrangement that shows how divisions, departments, functions,
and people link together and interact. These organizational workflows are depicted on a diagram
called an organizational chart. The organizational chart represents the way the organization is
intended to function. By examining the organizational chart of a business, there are certain things you
should be able to learn.
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Work Responsibilities
What the positions and job titles are.
Supervisory Relationships
What the supervisory lines are and who reports to whom.
Communication Channels
What the connecting lines are and how the formal communication flows.
Levels of Management
What the vertical layers of management are.
The traditional organizational structure is based on a hierarchy. The vertical hierarchy shows the
chain of command. The horizontal element of the chart shows the different jobs or work
specialization.
Back in Unit 1, the following organizational chart showed different levels of management. Notice how
this chart not only shows management levels, but also work responsibilities, supervisory
relationships, and formal communication channels. An organizational chart cannot show everything
that occurs in an organization. For example, the store manager from London may call one of the other
store managers across the country looking for a particular product that is out of stock in his/her store.
Figure 1: A Typical Organization Chart
Traditional Organizational Structures
The first decision in creating an organizational structure is to decide how to group people and jobs
into work units. This process is called departmentalization. On what basis will jobs be grouped
together? Some common bases are:
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function,
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product,
customer, and
territory.
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The four traditional organizational structures commonly used throughout the 20th century are:
functional, divisional, hybrid, and matrix. Many organizations today still use one of these traditional
structures.
Functional Structure
In a functional structure, people performing similar tasks are grouped together. Members of functional
departments share skills, technical expertise, and responsibilities, e.g., the people working in the
finance department have education and training in finance and accounting. The organizational chart
in Figure 2 shows only the top two layers of a common structure found in many businesses. This
structure works best in businesses that produce only one product or service.
Figure 2: A Functional Organization Chart
Check out the organization chart for California ISO (California Independent
System Operator Corporation) for a real-life example of an organization chart that
is based on a functional structure (See Handout).
Divisional Structure
In a divisional structure people, jobs, and activities are together based on:
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product produced or service provided,
process,
customer or client served, and
geographic area.
The organizational chart shown in Figure 1 is an example of a divisional structure based on
geography. Figure 3 shows a divisional structure based on product or brand. Cara Operations is a
Canadian corporation that operates full-service restaurants and an airline caterer, the following
depicts a possible organizational chart for Cara.
Figure 3: A divisional organization chart
Hybrid Structure
A hybrid structure combines different types of divisional structure in the same organization. The larger
the organization, the more likely it is that the organization will use a hybrid structure. In the example
depicted by Figure 4, the top layer of organization is divided by product line. In the next layer, each
product division is departmentalized by function, and then within each function there are regional
divisions.
Figure 4: A Hybrid Organizational Chart
Matrix Structure
The matrix structure combines the functional and divisional structures. The people in a matrix
structure belong to two formal groups at the same time, a functional group and a project team. This
distinction means they report to two supervisors. Matrix structures allow cross-functional teams to
share expertise and information quickly to solve problems.
Figure 5: A Matrix Organizational Chart
Assignment: Assessing Organizational Structure
What are the advantages and disadvantages of the functional, divisional, and matrix models of
organizational structures? Based on what you studied in this activity, and your own research,
complete the following table.
Structure
Functional
Divisional
Matrix
Advantages
Disadvantages