Organizational Structures: Simple, Functional, Divisional
Simple Structure
- Small and very narrow product line
- Highly informal information flow
- Owner-manager/top executive makes most of the decisions
- Staff serves as an extension of the owner
- Coordination of tasks by direct supervision
Advantages:
- Decision making is very centralized
- Few rules and regulations may foster creativity
- Owner-manager is involved in all stages of business
Disadvantages:
- Informality may lead to problems
- Employees may not clearly understand their responsibilities, leading to conflict and confusion
- Lack of regulations may lead to opportunistic behavior
- Flat structures limit upward mobility, lowering motivation and making recruiting difficult
Functional Structure
As a result of growth, the owner-manager hires specialists in the various functional areas: finance, production, marketing, and HR.
- Major functions of the firm are grouped internally
- Coordination and integration become a major responsibility of the CEO
- Typical in organizations with a single or closely related product or service and high production volume
- Still a high level of centralization, which helps to ensure control
Advantages:
- Pooling of specialists enhances coordination and control
- Centralized decision-making enhances an organizational perspective across functions
- Efficient use of managerial and technical talents (experts in each functional area)
- Facilitates career paths and professional development in specialized areas
Disadvantages:
- Differences in functional area orientation impede communication and coordination
- Tendency for specialists to develop a short-term perspective and narrow functional orientation
- Functional area conflicts may overburden top-level decision-makers
- Difficult to establish uniform performance standards
Divisional Structure
- Organized around products, projects, and markets
- Each division includes its own functional specialists, who are typically organized into departments
- Encompasses a set of relatively autonomous units governed by a central corporate office
- Operating divisions are independent and consist of products that are different from those of the other divisions
- Top-level managers must delegate decision-making to lower-level managers in order to attend to broader, long-term organizational issues
- Divisional executives determine the product-market and financial objectives for the division, as well as their contribution to overall performance
Advantages:
- Increases market responsiveness through collaboration and synergies among professional colleagues
- Allows more efficient utilization of resources
- Improves flexibility, coordination, and communication
- Increases professional development through a broader range of responsibility
Disadvantages:
- Dual-reporting relationships can result in uncertainty regarding accountability (the problem of having two bosses)
- Intense power struggles may lead to increased levels of conflict
- Working relationships may be more complicated, and human resources duplicated
- Excessive reliance on group processes and teamwork may impede timely decision-making