 Organisation structure refers to the

differentiation and integration of activities

and authority, roles and relationships in the
organizations.

 According to Koontz and Donnel, “

Organization structure is the establishments
of authority relationships with provision for
co ordination between them both vertically
and horizontally in the enterprise structure”
 Simplicity
 Flexibility
 Clear line of authority
 Application of ultimate responsibility
 Proper delegation of authority
 Minimum possible managerial levels.
 Principles of unity of directions and command
 Proper emphasis on staff
 Provision for Top Management.
 Divides work to be done in specific jobs &
dept
 Assign tasks and responsibilities associated

with individual jobs

 Coordinates diversified organizational tasks
 Establishes relationship between individual,

groups and department

 Establishes formal lines of authority
 Allocates organizational resources
 Cluster job in to units
1.Line Organizational Structure
2.Functional Authority Organizational
Structure
3.Line and Staff Organizational Structure
4. Divisional Organizational Structure
5. Project Organizational Structure
6. Matrix Organizational Structure
7. Hybrid Organizational Structure
8.Combined Organizational Structure
1.Line Organizational Structure
A line organization has only direct, vertical relationships between
different levels in the firm. There are only line departments-
departments directly involved in accomplishing the primary goal
of the organization.
2.Functional Authority Organizational Structure
The jobs or positions in an organization can be categorized as:
(i) Line position:
A position in the direct chain of command that is responsible for the
achievement of an organization's goals and
(ii) Staff position:
A position intended to provide expertise, advice and support for the
line positions.
In the line organization, the line managers cannot be experts in all
the functions they are required to perform. But in the functional
authority organization, staff personnel who are specialists in some
fields are given functional authority 
2.Staff or Functional Authority Organisational Structure
3)Line and Staff Organizational Structure:
Most large organizations belong to this type of organizational
structure. These organizations have direct, vertical relationships
between different levels and also specialists responsible for advising
and assisting line managers. Such organizations have both line and
staff departments.
Staff departments provide line people with advice and assistance in
specialized areas (for example, quality control advising production
department).
The line functions are production and marketing whereas the staff
functions include personnel, quality control, research and
development, finance, accounting etc
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4)Divisional Organizational Structure:
In this type of structure, the organization can have
different basis on which departments are formed.
They are:
(i) Function,
(ii) Product,
(iii) Geographic territory,
(iv) Project and
(iv) Combination approach.
5. Project Organizational Structure:
A project organization is a temporary
organization designed to achieve specific results
by using teams of specialists from different
functional areas in the organization. The project
team focuses all its energies, resources and results
on the assigned project. Once the project has been
completed, the team members from various cross
functional departments may go back to their
previous positions or may be assigned to a new
project. Some of the examples of projects are:
research and development projects, product
development, construction of a new plant, housing
complex, shopping complex, bridge etc.
6. Matrix Organizational Structure:
It is a permanent organization designed to achieve
specific results by using teams of specialists from
different functional areas in the organization. 
In matrix structures, there are functional managers
and product (or project or business group)
managers.
Functional manager are in charge of specialized
resources such as production, quality control,
inventories, scheduling and marketing.
Product or business group managers are
incharge of one or more products and are
authorized to prepare product strategies or
business group strategies and call on the various
functional managers for the necessary resources.
7)Hybrid Structure:
This structure is a form of departmentalization, which combines both
functional and divisional structure. Particularly large organizations
adopt this structure to gain the advantages of both functional and
divisional structures.
Functional structure gives the benefits of economies of scale, in-
depth expertise and resource utilization efficiencies, whereas,
divisional structure gives the benefits of specialization of products,
services and markets. In India, the most of the public sector units
and departmental undertaking like railways, etc., follow this
structure. A typical hybrid structure of an organization is illustrated
below:
7. Hybrid Organisational Structure:
8) Combination structure:
A combination or matrix organizational structure is the
combination of two or more types of structures. For example, a
company may use both a product- and customer-oriented structure,
striving to use the advantages of both types. Combination structures
are sometimes used temporarily for ad hoc or special projects. For
example, a small restaurant company may need an employee from
each department to test market a new chicken sandwich. Finance can
oversee the sales and profits, and marketing research can track visit
frequency and consumer interest.
8) Combination structure:
The effects of improper organization structure are as follows:
1)Low Motivation and Morale:
It may results from apparently inconsistent and arbitrary decisions,
insufficient delegations of decision making, lack of clarity in job
definition and assessment of performance, competing pressures
from different parts of the organization and managers and
supervisors overloaded through inadequate support systems.

2) Poor response to new opportunities and external

change:
It may result from failure to establish specialist jobs concerned with
forecasting environmental change, failure to give adequate attention
to innovation and planning of change as main management
activities, inadequate coordination between identification of market
changes and research into possible technological solutions.
3) Decision making is delayed or Lacking in quality:
Decision makers may be overloaded because the hierarchy may lead
them to many problems and decisions on them. Delegation
to lower levels may be insufficient. Another cause of poor quality
decisions is that information may not reach the correct people.
Information linkages in wither the vertical or horizontal direction
ma be inadequate to ensure decision quality

4) Organization does not respond innovatively to a

changing environment:
One reason for lack of innovation is that departments are not
coordinated horizontally. The identification of customer needs by
the marketing department and the identification of technological
development in the research department must be coordinated.
Organization structure also has to specify departmental
responsibilities that include environmental scanning and
innovations
5) Employee performance declines and goal are not being
met:
Employee performance may decline because the structure does not
provide clear goals, responsibilities and mechanisms for
coordination. The structure should reflect the complexity of the
market environment and be straight forward enough for employees
to effectively work within

6) Too much conflict is evident:

Organization structure is intended to enable departmental goals to
combine into a single set of goals for the entire organization. When
departments act at cross purposed or departments priorities are
out of alignment with those attributed to the wider organization, it
may be that the structure has incorporated insufficient horizontal
linkages.
Various steps in the formation of Organization Structure are:
1. Clearly defined objectives:
The first step in developing an organizational structure is to lay
down its objectives in very clear terms. This will help in determining
the type and basic characteristics of the organization, Infact,
organization activities are detailed in terms of objectives to be
achieved.
2)Determining activities:
In order to achieve the objectives of the enterprise, certain activities
are necessary. The activities will depend upon the nature and size of
the enterprise. For example, a manufacturing concern will have
production, marketing and other activities. There is no production
activity in retail establishment.
Each major activity is divided into smaller parts. For instance,
production activity may be further divided into purchasing of
materials, plant layout, quality control, repairs and maintenance,
production research etc.
3. Assigning duties:
The individual groups of activities are then allotted to different
individuals according to their ability and aptitude. The responsibility
of every individual should be defined clearly to avoid duplication and
overlapping of effort. Each person is given a specific job suited to
him and he is made responsible for its execution. Right man is put
on the right job.

4. Delegating authority:
Every individual is given the authority necessary to perform the
assigned activity effectively. By authority we mean power to take
decisions, issue instructions, guiding the subordinates, supervise
and control them.
Authority delegated to a person should commensurate with his
responsibility. An individual cannot perform his job without the
necessary authority or power. Authority flows from top to bottom
and responsibility from bottom to top.
5. Co-ordinating activities:
The activities and efforts of different individuals are then
synchronized. Such co-ordination is necessary to ensure effective
performance of specialized functions. Inter-relationship between
different jobs and individuals are clearly defined so that everybody
knows from whom he has to take orders and to whom he is
answerable.

6. Providing physical facilities and right environment:

The success of an organization depends upon the provision of
proper physical facilities and right environment. Whereas it is
important to have right persons on right jobs, it is equally important
to have right working environment. This is necessary for the smooth
running and the prosperity of the enterprise.
7. Establishment of structural relationship for overall control.
It is very essential to establish well defined clear-cut structural
relationships among individuals and groups. This will ensure overall
control over the working of all departments and their co-ordinated
direction towards the achievement of pre-determined goals of
business.
It is thus clear from the foregoing analysis that organization provides
a structural framework of duties and responsibilities. It not only
establishes authority relationships but also provides a system of
communication.
Organization structure is important in the following ways:
1)Coordination:
The organization structure serves as a mechanism for coordination
and unification of efforts of people. Harmony of work is brought
about by higher level managers exercising their authority over
interconnected activities of lower level managers.
2) Source of support and security:
It is a source of support, security and satisfaction to managers and
employees in performing their assigned tasks. It recognizes the
relative status levels of members each one of the member enjoys a
definite status and position in the organization
3) Adoption:
It facilities adjustments to changes in work load caused by
changing conditions in the external environment related to
technology, markets, products and services
4) Chain of Command:
The role of the organization structure is to set up a chain of
command or reporting structure among workers. Chain of
command refers to the hierarchy or rank of various employees
For Eg: Vice Presidents usually report to the president, director’s
report to vice presidents and manager’s report to directors.
Managers often have coordinators or analysts working under them.
Chain of command allows companies to assign a supervisor for one
or more employees
5) Decision Making:
One of the important role of organization structure is decision
making. For Eg: In decentralised structures front line employees are
often empowered to make on the spot decisions to meet customer
needs. An example of this the clothing store clerk who is able to
offer a refund or exchange without management’s authorization. In
centralized structures, low level employees pass critical information
to managers, who make the majority of decisions.
6) Efficiency:
organizational structure also enhances efficiency. In a functional
organization where a small company is more departmentalized ,
the head of the department usually delegates certain project tasks
to directors or managers. This individuals inturn, divide task with
various coordinators and analysts.