Organizational Structure: Meaning, Definition, Types (Departmentalisation)

Meaning of Organizational Structure

Organizational structure refers to the systematic arrangement of human resources within an organization to achieve common business objectives. So, it outlines the roles and responsibilities of every member of the organization, ensuring the smooth functioning of the organization. 

Definitions of Organizational structure by Different Authors

Henry Mintzberg tells that The Organizational structure is the “framework in which the organization carries out its tasks.”

James D. Thompson said that Organizational structure is the “system of task and authority relationships that coordinate the activities of individuals and groups in the organization.”

Paul R. Lawrence and Jay W. Lorsch said that Organizational structure is the “system of interrelationships among the various parts of the organization.”

Peter Drucker said that Organizational structure is the “pattern of relationships among the various positions and functions in the organization.”

Max Weber said that Organizational structure is the “system of authority relationships in the organization.”

Chester Barnard explains that Organizational structure is the “system of communication and decision-making in the organization.”

Talcott Parsons described Organizational structure as the “system of roles and statuses in the organization.”

William Ouchy said that Organizational structure is the “system of control and coordination that enables the organization to achieve its goals.”

Tom Peters and Robert Waterman said that Organizational structure is the “system of roles, responsibilities, and relationships that enable the organization to function effectively.”

Michael Porter said that Organizational structure is the “system of resources and capabilities that enable the organization to compete effectively in its market.”

Gary Hamel and C.K. Prahalad said that Organizational structure is the “system of innovation and learning that enables the organization to create new products and services and to adapt to change.”

James Collins and Jerry Porras explained that Organizational structure is the “system of values and beliefs that guide the organization’s behavior.”

Kenichi Ohmae explained that Organizational structure is the “system of networks and relationships that enable the organization to operate globally.”

Rita McGrath said that Organizational structure is the “system of agility and responsiveness that enables the organization to adapt to change quickly.”

Chris Zook tells that Organizational structure is the “system of customer focus and alignment that enables the organization to deliver a great customer experience.”

It is important to choose the right organizational structure for a business as it helps in achieving the company’s goals, handling the workforce efficiently, and improving coordination between various divisions.

Elements of Organizational Structure

So the key elements of an organizational structure are work design, departmentalization, delegation, hierarchy, and management ratio. So basically these elements are crucial in designing an organizational structure that would work best for a particular company.

• Work design defines the nature and job description of a particular position.
• Departmentalization involves the grouping of jobs into departments to facilitate the coordination of work.
• Delegation means the power conferred to each employee and department in the organization.
• Hierarchy creates various levels of authority arranged in the order of delegated powers in the organization.
• Management ratio refers to the number of employees that are reporting to a supervisor.

Types of Organizational Structure/ Departmentalization

Organizations implement different types of department structures depending on the nature of their business, customer needs, products in demand, and services required. So, here are some of the popular organizational structures.

 1. Hierarchical Structure

Basically this hierarchical structure is the most common type of organizational structure where employees are grouped and assigned a supervisor. Employees may be grouped by their role or function, geography, or any other relevant factors. 

This structure creates a clear chain of command, enabling quick decision making and better coordination and communication among employees, resulting in enhanced productivity.

Pros:

• Clear chain of command.
• Quick decision making.
• Better coordination and communication among employees.

Cons:

• Rigid structure.
• Limited flexibility.
• Can lead to bureaucracy.

 2. Functional Structure (Functional Departmentalization)

The functional structure groups employees into different departments by work specialization. So that each tier may share information and offer direction horizontally (to one another). 

This structure is ideal for large companies with many departments and for those companies that need to meet strict deadlines.

Pros:

• Efficient use of resources.
• Clear specialization of roles.
•  Improved communication within departments.

Cons:

• Limited interaction among departments.
• Can create a silo mentality.
• May lead to lack of flexibility.

 3. Divisional Structure

Basically, the divisional structure groups employees based on the products or services they offer. This structure is ideal for companies that offer multiple products or services and have different customer needs.

Pros:

• Improved focus on products or services.
•  Better understanding of customer needs.
•  Improved coordination within the division.

Cons:

• Limited sharing of resources.
• Can lead to duplication of efforts.
• May lead to a lack of coordination among divisions.

 4. Matrix Structure

The matrix structure is a combination of functional and divisional structures. It allows employees to work on different projects while still being part of their department. So, this structure is ideal for companies that require cross functional teams to work on projects.

Pros:

• Improved coordination among departments.
• Efficient use of resources.
• Improved communication among departments.

Cons:

• Can lead to conflicts in decision making.
• Complex structure.
• Can lead to confusion among employees.

What are 3 Examples of Functional departmentalization?

Let’s take three functional departments commonly found in many organizations:

1. Human Resources Department (HR): The HR department takes care of all matters related to employees. They handle recruitment, onboarding, employee benefits, training, and performance evaluations. It’s like the “friendship and support” department in school, always there to help you navigate the ups and downs of student life.
2. Finance Department: The finance department deals with all the money matters of the organization. They manage budgets, expenses, financial reports, and payroll. It’s similar to the “math and money” department, keeping everything balanced like a pro.
3. Operations Department: This department oversees the day-to-day operations and ensures that everything runs smoothly. They coordinate activities between different teams and make sure deadlines are met. Think of it as the “time management and coordination” department, making sure all school events and activities happen like clockwork.

What is the function of departmentalization?

Departmentalization serves several important functions in an organization. Here are some key benefits:

1. Efficiency and Specialization: By grouping employees based on their skills and expertise, departmentalization allows individuals to focus on their specific tasks, leading to increased efficiency and specialization. It’s like having a group of friends who excel in different subjects, helping you with your studies.
2. Clear Communication and Coordination: Departments facilitate clear communication channels within the organization. Teams within each department can easily collaborate and coordinate their efforts. It’s like having a group project at school, where everyone knows their role, and communication flows smoothly.
3. Accountability and Performance Evaluation: Departmentalization helps establish accountability. Each department is responsible for specific goals, making it easier to evaluate their performance. Imagine your school giving awards for the best-performing department in academics, sports, and extracurricular activities.
4. Flexibility and Adaptability: Different types of departmentalization allow organizations to adapt to changing market conditions and customer needs. It’s like how your school adapts its schedule during exam time to ensure everyone gets enough time to prepare.
5. Streamlined Decision-Making: Departments facilitate decentralized decision-making, enabling quicker responses to challenges and opportunities. It’s like having a student council where different representatives voice the concerns of their classmates and make decisions together.

How Departmentalization Works in an Organization

As I earlier explained that, Departmentalization is the process of dividing an organization into smaller units or departments based on various criteria to facilitate efficient functioning. Let’s explore the basic organization units and the coordinating structure.

Basic Organization Units: Production, Marketing, and Finance

In most organizations, three fundamental activities play a crucial role in their survival: production, marketing, and finance. Let’s understand each of them with real-life examples:

1. Production: This department is responsible for creating goods or services offered by the organization. For example, in a manufacturing company, the production department would be responsible for designing, manufacturing, and assembling products. In a software development company, this department would handle the creation of software applications.
2. Marketing: The marketing department focuses on promoting and selling the organization’s products or services. when the product use by willing to accept it at terms mutually agreeable to the seller (enterprise) and the buyer. For instance, a marketing team may run advertising campaigns, engage in social media marketing, conduct market research, and handle customer relations.
3. Finance: The finance department manages the organization’s financial resources. They handle budgeting, financial planning, accounting, and financial reporting. In addition, they may be involved in activities like seeking investment opportunities, managing cash flow, and dealing with financial risks.

Additional Organization Units: Resulting from Complexity and Scope

As organizations grow in complexity and scope, additional organization units may emerge to ensure effective functioning. For example:

1. Marketing Unit Expansion: Under the marketing department, sub-units may form, such as advertising, sales promotion, and direct selling teams. Each of these sub-units focuses on specific marketing activities to reach a broader audience and achieve better results.
2. Production Unit Expansion: The production department may divide into units like engineering and research, factory work, and purchasing. These specialized units help streamline production processes and ensure efficiency in different aspects of production.

Coordinating Structure: Achieving Organizational Integration

To avoid inefficiency and create a cohesive organization, managers need to focus on integrating all functional units. Real-life examples of methods to achieve this integration include:

1. Interdepartmental Committees: These committees consist of employees from various departments, such as finance, marketing, accounting, and production. They collaborate to discuss and resolve issues that involve multiple departments, ensuring effective coordination.
2. Management Development Programs: These programs provide all management and supervisory personnel with a broader perspective of the organization. It helps them understand how their individual functions contribute to the overall organizational objectives.
3. Job Rotation: Employees are given opportunities to work in different departments or roles within the organization. This fosters a better understanding of the overall functioning and helps create a more versatile and integrated workforce.
4. Task Forces: Temporary teams comprising personnel from different departments are formed to work on specific projects. This promotes cross-functional collaboration and enhances problem-solving capabilities.

Choosing the Best Type of Departmentalization

There is no one-size-fits-all approach to departmentalization. The CEO and management must consider various factors, such as the organization’s objectives, the nature of work, employee skills, technology, and external factors, to determine the most suitable structure.

For example, a technology company that heavily depends on innovation and R&D may benefit from a matrix organizational structure, where employees work in both functional and project teams. On the other hand, a small retail business may find a simple functional departmentalization more suitable.