The document discusses organizational structure, defining it as a system that dictates decision-making responsibilities, division of tasks, and information flow within a company. It outlines various types of structures such as functional, divisional, matrix, process, and flatarchy, each with distinct advantages and challenges. The effectiveness of an organizational structure directly impacts communication, productivity, and innovation within a company, emphasizing the importance of choosing the appropriate structure for optimal efficiency.

1. Management and Organization (5569)
ORGANIZATIONAL STRUCTURE
Hill and McShane, (2008) define ‘organization structure’ as:
“The location of decision making responsibilities in the firm, the formal division of
the organization into subunits, and the establishment of integrating mechanisms to
coordinate the activities of subunits.”
An organizational structure is a system that outlines how certain activities are directed in order to
achieve the goals of an organization. These activities can include rules, roles and responsibilities. The
organizational structure also determines how information flows from level to level within the
company. For example, in a centralized structure, decisions flow from the top down, while in a
decentralized structure, the decisions are made at various levels.
Organizational structure defines a specific hierarchy within an organization, and businesses of all
shapes and sizes use it heavily. A successful organizational structure defines each employee's job and
how it fits within the overall system. This structuring provides a company with a visual representation
of how it is shaped and how it can best move forward in achieving its goals. Organizational structures
are normally illustrated in some sort of chart or diagram.
Not having a formal structure in place may prove difficult for certain organizations. For instance,
employees may have difficulty knowing to whom they should report. That can lead to uncertainty as
to who is responsible for what in the organization. Having a structure in place can help improve
efficiency and provide clarity for everyone at every level. That also means that each and every
department can be more productive, as they are likely to be more focused on energy and time.
CENTRALIZED VS DECENTRALIZED ORGANIZATIONAL STRUCTURES
At its highest level, an organizational structure is either centralized or decentralized. Traditionally,
organizations have been structured with centralized leadership and a defined chain of command. The
military, for example, is an organization famous for its highly centralized structure, with a long and
specific hierarchy of superiors and subordinates. However, there has been a rise in decentralized
organizations, as is the case with many technology startups. This allows the companies to remain fast,
agile and adaptable, with almost every employee receiving a high level of personal agency.
Whether an organization should structure its functions as centralized or as decentralized? This is no
longer the right question; the question is not either/or but, rather, how to do both simultaneously when
appropriate. Finance, for example, might well be centralized, while human resources are
decentralized.

2. Management and Organization (5569)
TYPES OF ORGANIZATIONAL STRUCTURES
 Functional Structure: This is also referred to as a bureaucratic organizational structure and
breaks up a company based on the specialization of its workforce. Most small-to medium
sized businesses implement a functional structure. Dividing the firm into departments
consisting of marketing, sales and operations is the act of using a bureaucratic organizational
structure. Functional structure is probably the easiest to create and understand. Basically, each
functional area, such as operations, production, R&D, human resources, finance, legal,
marketing, and so on, is managed by a manager who is usually a specialist in the area
managed.
 Divisional or Multidivisional Structure: This type is common among large companies with
many business units. A company that uses this method structures its leadership team based on
the products, projects or subsidiaries they operate. A good example of this structure is
Johnson & Johnson. With thousands of products and lines of business, the company structures
itself so each business unit operates as its own company with its own president.
In contrast to the functional structure, the divisional structure is organized by product line.
Each product line division is self-contained; each product line is then organized by function.
Each product has a senior manager, and each function within the product line has a separate
manager who reports to the division manager.

3. Management and Organization (5569)
 Matrix Structure: A matrix structure tends to be more complex than either of the structures
described so far. Its objective is to attempt to maximize the strengths of both functional and
divisional structures, while minimizing the weaknesses. Each person basically reports to two
managers: a functional manager and a product manager. This can be extended even further by
adding a geographic manager (e.g., “Asian Region”).
 Process Structure: Organization occurs around common processes- for example, providing
quality customer service, researching new products and services, distributing products to the
marketplace, managing the organization,
and so on. These basic process structures
can be modified in almost unlimited
ways. What is critical to the organization
design (OD) professional is to
understand what the objective is in a
restructuring. Change for the sake of
change is going to use resources
ineffectively and could cause
considerable unrest and possibly harm in
the organization. (McLean, 2006)
 Flatarchy: a newer
structure, is used among
many startups. As the name
alludes, it flattens the
hierarchy and chain of
command and gives its
employees a lot of
autonomy. Companies that
use this type of structure
have a high speed of
implementation.

4. Management and Organization (5569)
THE IMPACT OF ORGANIZATION STRUCTURE ON PRODUCTIVITY
The structure of an organization sets the hierarchy for responsibility and creates the various levels of
communication within an organization. The manner in which an organizational structure is set up and
administered can have a direct effect on company productivity. When management is monitoring
employee output, consider how the various issues with organizational structure can affect efficiency.
 Managerial Influence: The efficiency of managerial staff has a broad-reaching effect in
organization because of the organizational structure. Weak or incompetent management at
any level of an organization will spread throughout the company as bad managerial decisions
in those departments also affect the departments that come into contact with each them and
reduce productivity. Good management can have the opposite effect, as efficient and
intelligent decision-making can help improve productivity and raise overall efficiency.
 Structural Flaws: If organizational structure is not set up properly, information is not able to
travel where it is needed. If the middle management team does not have effective channels of
communication with the executive team, important company information could take days
before it reaches the entire staff. Flaws in organizational structure that cause breakdowns in
communication or lapses in responsibility need to be repaired to facilitate efficiency.
 Creativity: Ideas from employees are critical to the success of the organization. The influx of
employee input adds to current company ideas and offers a variety of opinions that company
management may not have considered. The bureaucracy that can sometimes develop in an
organizational structure can stifle that creativity and hurt productivity. For example, if a
manufacturing employee submits an idea to make better use of manufacturing equipment that
would lower costs, but that idea gets lost in the shuffle of corporate bureaucracy, the company
could be losing money when it could be seeing an improvement in productivity.
 Growth: As a company grows with a weak internal structure, communication and
administrative channels are strained to the point of inefficiency. A strong corporate structure
that is designed to grow with the organization can maintain corporate productivity during
times of growth and allow for structural improvements that will be necessary as the
organization expands. (Root III, 2019)
So, an organizational structure groups people together in some fashion that an owner hopes will best
promote productivity. In an ideal world, employees will be able to communicate, share resources,
coordinate activities and still be efficient. Perfection doesn’t exist, though, so a prudent owner must
consider trade-offs. For instance, workers in highly specialized jobs may be productive, but
innovation disappears. When considering which organizational structure to adopt, an owner should
examine how each framework will impact productivity and why.
REFERENCES
Hill, C. W., & McShane, S. L. (2008). Principles of management. Boston: McGraw-Hill/Irwin
McLean, G. (2006). Organization development: Principles, processes, performance. California: Berrett-Koehler Publishers.
Root III, G. N. (2019). The Impact of Organization Structure on Productivity. Retrieved from https://smallbusiness.chron.com/impact-
organization-structure-productivity-21902.html