Every organization has a structure that depends on the tasks they are dealing with. If the work is temporary, the structure should allow temporary hire and fire, etc.
However, if the organization has a permanent operation, the structure should allow for activities that help maintain its operation.
Organizational structure is a system set up that determines the hierarchy of people, their function, workflow, and reporting system. It is an enterprise environmental factor and it guides how an organization runs its operations.
As organizations grow their requirements change. The structure must adapt to support its objectives.
Why is an Organizational Structure Needed?
The market is competitive; therefore, the organization should adapt to market demand and be responsive.
Organizations with poor structure will not survive.
A well-defined structure helps the organization realize its potential and support its objectives.
Let us say your organization is producing a product. Your customers are satisfied and not very demanding; what kind of organizational structure will you select?
You will select the functional organizational structure because it supports production operations.
Let’s consider another case.
Suppose your organization has ten employees and deals with small projects. You always start looking for a new project.
In this case, what kind of structure will you select?
You will select the projectized organizational structure as you are dealing with projects.
Now, the final case.
Your organization is enormous. The work environment is dynamic. Customer requirements and market demands are always changing.
What kind of structure will you select?
You cannot select the functional organization because it does not allow for quick changes to its operations.
You also cannot select the projectized structure. Although it supports a dynamic nature, this is not enough. Your organization is big and you need permanent departments to keep your organization functioning. This is not possible with a pure projectized organization.
Therefore, you will select a matrix organizational structure. It has the qualities of both the functional and projectized organizational structure and will support your operations and help achieve the organization’s objectives.
Types of Organizational Structure
The type of structure depends on many factors, such as governing style, leadership style, workflow, hierarchy, and many more.
The PMBOK Guide defines eight organizational structures:
- Organic or Simple Organization
- Functional or Centralized Organization
- Multi-divisional Organization
- Matrix Organization
- Project Oriented (Composite or Hybrid) Organization
- Virtual Organization
- Hybrid Organization
Wikipedia has six organizational structures:
- Pre-bureaucratic Structure
- Bureaucratic Structure
- Post-bureaucratic Structure
- Functional Structure
- Divisional Structure
- Matrix Structure
Some other sources divide them into the following categories:
- Simple Organization
- Functional Organization
- Divisional Organization
- Matrix Organization
- Team-Based Organization
- Network-Based Organization
- Modular Organization
On the Internet, you will find many more structures. However, the classifications above are the most popular.
Since this blog is dedicated to PMP exam preparation, I will focus on the PMBOK Guide’s definitions and explain the other structures in brief.
Organic or Simple Structure
Here, you may work alone or side by side.
You may be the only employee in your company.
Instances of this type are solopreneur, OPC (One Person Company), or a freelancer.
Functional (Centralized) Organizational Structure
This is the most commonly used organizational structure. Here, the organization comprises various departments, each department has people with similar skills: sales department, marketing department, finance department, to name a few.
This helps organizations enhance the efficiencies of each functional group.
Here you may have many functional divisions with a little centralization. Generally, these divisions are independent. Project managers do not have authority; however, they have part-time staff.
An organization is divided into various divisions. Employees with diverse skills are kept together in the form of groups based on a similar product, service, or geographic location. Each division has the resources required to function and can do the task on its own.
Matrix Organizational Structure
This is a hybrid of a functional and projectized organizational structure. Here you have two command structures: vertical and horizontal. An employee may belong to a functional group, but can also work on a project; this structure uses the best of both worlds.
A matrix organizational structure can be of three types:
- Strong Matrix Structure
- Balanced Matrix Structure
- Weak Matrix Structure
Strong Matrix Structure
Strong matrix organizations are closer to a projectized organization. Here the project managers have the highest authority, control over the budget, and a full-time team reporting to them.
Balanced Matrix Structure
A balanced matrix has properties of both functional and projectized structures. Here, project managers have a low-to-moderate authority and a part-time team. The budget is managed by both the project manager and the functional manager.
Weak Matrix Structure
A weak matrix is closer to a functional structure. Here, project managers have low authority and no control over the budget; they will have a part-time team.
Project Oriented (Composite or Hybrid) Organizational Structure
A projectized organization obviously deals with projects. Project managers have full authority to complete the project successfully, have a full-time role, control over the budget, and a full-time team reporting to them.
A team-based structure is another name for a projectized organizational structure.
Many experts call this a virtual corporation. The central organization is connected to outside firms via the internet. The outside firm can be a vendor, client, or associate. This structure helps organizations achieve corporate growth and a greater profit. In a network structure, the organization keeps its core business to itself while the rest of the processes are outsourced. This structure is also known as a hollow corporation, hollow organization, or network structure.
Here the project manager has a low-to-moderate authority, however, they have mixed control over the budget. They may or may not have a full-time team reporting them.
True to its name, this structure may use any combination of the organizational structures.
Suppose yours is a functional organization. It needs a small building, and your organization has the capability to build it. In this case, your organization will create a separate project team to complete this task.
This is a mixed structure. Responsibility, authority, and other factors are also mixed depending on the structure.
PMO is also a mixed organizational structure. Project managers have the highest authority. They control the budget and have a full team reporting to them.
Here is where the blog post on organizational structure ends.
Now, let’s take a look at other organizational structures that are not mentioned in the PMBOK Guide. This is for your information only. Don’t expect to see a question on these types of structures on your PMP exam.
The Simple Structure
This structure is suitable for small organizations in their early stages. They have just started and are in the development phase. Here, the authority lies with a single person. These structures have a few rules and work is low skilled.
Some scholars call this a pre-bureaucratic structure.
The Modular Structure
In this structure, the organization outsources some parts of a product.
Keep in mind that in the network structure the organization outsources the processes, while in a modular structure they outsource only a few parts of the product.
Pre-bureaucratic organizations do not have standard procedures and policies. This structure is used by small-scale organizations and has a few employees who handle simple tasks. It has a central command with one decision-maker in the top position.
Communication takes place on a one-on-one basis and it usually is informal.
This structure is suitable for huge organizations with complex operations and that need smooth administration. They have standard procedures and processes.
An example of this organizational structure is the food and beverage industry where there are strict rules and regulations.
Post-bureaucratic organizations are developed and have various standards and procedures. These organizations have a central command comprising several board members, decisions are made through a democratic process. This encourages employee participation, trust, personal treatment, and responsibility.
The Advantages of an Effective Organizational Structure
An organizational structure has a well-defined reporting structure. It reduces friction among employees by clarifying roles and responsibilities.
Having a proper organizational structure can bring immense benefits to any organization. A few of these benefits are:
- It allows an organization to grow.
- Focuses attention on your strategic goals, instead of each department focusing on its agenda.
- Unites a group of people and points them towards a common goal.
- Encourages employees to enhance their skills.
- It makes the decision-making process efficient, smoother, and faster.
- Facilitates the specialization of employees.
- It enables better control and use of resources.
- Establishes a proper reporting system.
- Enables easier and better communication, which helps in reducing conflicts.
- Allows employees to perform better.
- Helps employees grow their career and streamline new employees.
- Identify clear roles and responsibilities.
An organizational structure is a framework that helps organizations achieve their business objectives. It defines the relationship between the various departments and teams. It helps organizations to delegate authority, power, and responsibility.
An organizational structure shows employees a transparent reporting system helping to avoid conflicts and supporting good communication. An organizational structure is essential for smooth functioning. An organization should choose its structure depending on its needs and requirements. An incorrect structure will hinder growth.
What type of structure does your organization have? Please share your experiences at work in the comments section.