UNIT II
BASIC ELEMENTS OF ORGANIZATIONAL STRUCTURE
Introduction
This module will introduce and define the elements of organizational structure, its
functions and importance in achieving the organization’s goals. This module will also discuss
how to choose a structure that fits your business requirement. The lectures will focus on the
definition of organizational structure, its functions and importance in the business,
identification of various types of organizational structure, its advantages and disadvantages
and the matrix for decision-making.
Learning Objectives:
At the end of this unit, students are expected to:
• Define organizational structure;
• Identify the different organizational structures;
• Discuss the elements of organizational structure and its corresponding functions;
• Compare which structure is best for a particular business; and
• Evaluate the most acceptable and relatable structure for your profession.
Lesson 1: What is Corporate Structure
Corporate structure refers to the organization of different departments or business units
within a company. Depending on a company’s goals and industry in which it operates, corporate
structure can differ significantly between companies. Each of the department usually performs a
specialized function while constantly collaborating with each other to achieve corporate goals
and values.
Corporate structure is the basis for building any financial models. Depending on the kind of
products/service a company provides or the industry it is in, its corporate structure can look very
different from that of other businesses. Therefore, Financial Planning Analysts should work
closely with different business units in the company to understand their responsibilities and areas
of expertise.
Lesson 2: Types of Organizational Structure
FUNCTIONAL STRUCTURE
1 The classic way to organize a company is by dividing it into departments that reflect the
main functions of the business, each handled by a director or manager. The departments
operate independently, with the managers reporting to the CEO or president, who has
overall command. The sales and marketing department usually takes responsibility for
managing product lines.
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DIVISIONAL STRUCTURE
2 Some companies arrange their staff into divisions devoted to a specific product or market.
Each division is a self-sufficient team employing the personnel for the various functions
within it.
Division by geography
For business with products that need to be adapted to local markets, an organization
can be structured according to each of the regional markets it serves. These may be
domestic or International.
Print technology and services company XEROX has successfully adopted this structure
Division by product
Business selling different types of products may pick a structure by which each division
handles one category. Fast-food chain McDonald’s has been organized by product division.
Division by customer type
Businesses with distinct customer markets may be organized by customer division.
Ex.: Bank of America Merrill Lynch caters to individuals, small businesses, and corporate
and institutional clients.
MATRIX STRUCTURE
3 Unlike conventional company hierarchy organized either by function of division, a matrix
combines the two approaches so that staff work in both function and divisional units,
and report to two -bosses.
4 NETWORK STRUCTURE
Also called a virtual organization or virtual corporation, a network structure is centered
around a streamlined company, with digital connections linking it to external, independent
businesses.
In this example, a Network Screen is a small film production company based in Los Angeles,
US, Operating from studio space with two employees- a producer and an assistant. For each
project, the producer connects with outsourced talent around the world and everyone
collaborates to create the finished film. The producer contracts and pays these suppliers.
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5 TEAM-BASED STRUCTURE
As its name implies, a team-based organization (TBO) is made up entirely of teams, Managers
and staff from different departments join to form teams handling specific projects, in the
short or long term.
While TBOs still have a CEO, little other hierarchy exists. Team leaders are part of the
team rather than above it in a chain of command. At its best, a team-based model
fosters a culture of trust, so individuals take pride in their work and responsibility for
carrying out tasks well on time and budget.
FIRM-UP: RESEARCH
Your main goal in this section is to learn and understand the key concepts by working on the
following guide questions:
• What are the Pros and Cons of each organizational structure?
• What is your opinion about each? Are there conflict/issues in each structure?
• How does these structures works?
Structure How it Works Pros and Cons
PROS
‣ Allows for the
The chain of command development
is straightforward. The of
business typically specialization
and expertise
consists of a chief ‣ Enables efficient use
Functional Structure executive office (CEO) of resources and
or president at the top, potential economies
of scale
with the various ‣ Offers obvious
specialist departments career path for
each employees in
of divisions, such as
each department.
marketing and finance ‣ Simple, efficient
aligned in the structure. structure for
Each department manufacturers
producing a limited
operates as an range of goods for sale
independent unit, with
its own budget, and CONS
‣ Formal lines of
reports directly to the communications;
CEO, who takes stifles innovation and
responsibility for the creativity
‣ Departments fail to
operation for all the coordinate with one
departments. another efficiently
This is the ‣ Response time on
problems and queries
most common between different
type of department slow
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organization ‣ Many decisions
structure. referred up to the top,
creating a backlog
Under the overall PROS
control of a CEO of ‣ If one division fails, no
president, several threat to the rest of the
divisions work business
Divisional Structure alongside one another ‣ Can respond quickly to
to design, research, changes in the market
produce, and sell a ‣ Focused on customer needs
particular product, or to ‣ Performance of each
service a specific division clearly
market. Each division measurable
runs its own specialist
functions, such as CONS
operations and ‣ Doubling up resources
production, sales and (ex. Each division
marketing, and employing finance)
finance. ‣ Lack of expertise-
sharing between
A company may division
arrange its divisions ‣ Career path for staff
according to the types restricted
of product it makes, the ‣ Heightened sense of
regions in which it competition among
divisions
operates, or the
customers to whom it
sells. Large companies
may adopt HYBRID
STRUCTURES - by
product and geography,
for example.
PROS
A business that uses a matrix
‣ Faster decision making
Matrix Structure set-up often begins with the
‣ Potential for improved
more traditional functional productivity
structure. As the business ‣ Flexible use of staff
develops, it may make sense to
CONS
overlay a divisional structure to
‣ Expensive to set-up and run
meet the changes in business
‣ Possible confusion as to the
conditions. reporting line
More potential for interpersonal conflict
Two chains of command in a as team goals conflict
matrix create the grid. Staff
report along a vertical line to a
functional manager, such as the
marketing director, and along a
horizontal line to the project
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manager of a specific business
line, brand, project, or region.
PROS
‣ Potential for round-the-clock
work because of global
Network Structure
locations
‣ Can source the best
expertise wherever it is in
the world
‣ Low overheads as there
are minimal staff in the
core company
‣ Flexible and highly creative
environment
CONS
‣ Extreme reliance on
technology network errors
can stop effective
performance of the
business
‣ Potential for
misunderstandings because
little face-to-face
communication
‣ Difficult to find common
time across time zones
for virtual meetings
VIDEO VIEWING
You have to watch this video to learn and understand comparison of authority
system in organizational setting. This video looks at booth organizational structures
to compare and contract them and also discusses the strength and weakness of
both. Watch with comprehension and obtain the best grasps, and able to connect
on the next activity. Take down notes and highlight the important things for you to
be able to make a reflection about this video.
CENTRALIZATION VS DECENTRALIZATION
https://www.youtube.com/watch?v=jviFsd4hhfE
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PERFORMANCE TASK
Based on the lectures and your experience doing the activities, identify the
type of structure according to your preference as employee and as the
business owner. Please include a short discussion about your choices.
Options As employee As business owner
Preference -
Organizational
Structure
(discuss
briefly)
Recommend -
authority
structure
(discuss
briefly)
What is the
importance and
impact of a
chosen
organizational
structure in the
success of a
company?
