An organizational system is a complete structure of how an organization runs. The configuration defines how the division of businesses runs – the hierarchy and how communication flows throughout the organization. And if we break it down a little further, organizational structure explains how every role functions in an organization. With a distinct organizational structure in place, every employee knows what their duties are.
Business owners must think carefully about what systems to choose and improvise with each organization’s needs. It is simple: one structure that is right for a company may not work for another.
An organizational system is simply a company setup. One good organizational structure rests on both the flow of communication and hierarchy in a company. Each business needs to implement an organizational system, regardless of size. With a corporate structure, you invite multiple benefits, including improved productivity, efficiency, and decision-making – every arrangement has strengths and weaknesses.
Eventually, these pros and cons are based on your industry, the type of business you run, the organization’s size, and multiple other factors. Suppose you are considering every organizational system before determining which suits the company.
Four Types of Organizational Structures
Functional
If you have worked as an employee, you have worked in a functional structure. Functional structures are based on the organization being divided into smaller groups with specific roles and tasks. For instance, a company might have a group working in marketing, information technology, and finance.
Every department has a director or manager who answers at an executive level to oversee departments.
One great advantage of the functional structure is that the employees are grouped by skill set, letting them focus all their collective energies on executing their roles as a department. One of the challenges this structure brings is the lack of inter-departmental communication, with most discussions and issues taking place at the managerial level among the individual subdivisions. For instance, one division working on a project with another could have different expectations for its specific job, leading to issues down the road.
Divisional
A larger company that sometimes operates across multiple horizontal objectives uses a divisional organizational structure. The divisional structure permits more autonomy among groups within the organization. An example of this could be General Electric. GE has different divisions, including currents, transportation, aviation, and renewable energy.
Under this structure, every division fundamentally operates as its own company, controlling its resources and money on aspects of the division or projects.
This structure offers great flexibility to a large company with multiple divisions. It lets each one operate as its own company with one or more people reporting to the parent company’s management staff chief executive officer. Instead of getting all programs approved by the top level, you can also answer those questions at the divisional level.
However, a downside of this organizational system is that by focusing on the divisions, employees working in the same function in different divisions might be unable to communicate well. This structure raises problems with accounting practices and may have tax implications.
Matrix
Matrix is a hybrid organizational structure with a blend of organizational structure and functional structure.
In this system, employees report to two or more superiors depending on the situation’s projector. For instance, under normal functional circumstances, an engineer at a large engineering firm could work for one boss, but new projects may arise. The employee could also report to the project manager or their boss for other everyday tasks during the project.
The advantage of this structure is that employees share their knowledge across the different functional divisions, permitting better communication and an understanding of each function’s role. Also, employees can broaden their knowledge and skills by working across operations, leading to professional growth inside the company.
On the other hand, reporting to managers adds confusion and conflict between managers. And if the priorities are not clearly defined, the employees may get confused about their roles.
Flatarchy
Sure, the previous three organizational structure types may work for organizations, but another hybrid structure is better for small businesses or startups.
Blending flat and functional structures results in autarchy, which allows more decision–making among distinct levels of an organization and, overall, flattens out a hierarchy’s appearance. One of the best examples of its futuristic structure is whether it is an innovation program or an internal incubator. Within this system, the company operates in an existing design. Still, employees at any stage are encouraged to suggest ideas and run with them, potentially building new flat teams.
LinkedIn, Adobe, Google, and other companies have internal incubators where employees should be innovative and creative to promote the company’s overall growth.
This system’s benefit is that it permits more innovation company-wide and eliminates red tape that could stall revolution in the functional structure. As for the negatives, the design may be inconvenient and confusing if everyone involved does not agree on how to systematize the system.
Overall
See what structure works best for your organization. Just remember that every organization is different, and no system is perfect. You learn from failing and failing again. The proper organizational structure can bring you close to your motives; the key is never to stop trying!
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