Please note that this is an important topic from a PMP exam point of view, and you may see a few questions on this topic on your exam.
In today’s blog post, I’m going to explain to you about the organization structure, why it is needed, its benefits, and its various types. I hope that this blog post will help you understand the concept of organization structure.
Okay, let’s get started.
Organization structure is a setup or a framework which determines the hierarchy of people, its function, workflow, and the reporting system in an organization.
The organization structure is an enterprise environmental factor that plays an important role in guiding the ways in which you behave and your organization runs its operations.
Why an Organization Structure is Needed?
Every organization must have a well-defined organization structure if it wants to work efficiently and achieve its goal with fewer hurdles.
Nowadays, organizations have to be very competitive, productive, efficient, and dynamic if they want to survive and grow. Clients and consumers are becoming more quality conscious and demanding and they need a quick response from organizations.
Therefore, to fulfill customer requirements, market demand and for self-survival, it is very necessary for any organization to define a structure for itself which is best suited to its requirements and supports its objective.
Let’s say your organization is producing a product whose specifications rarely change. Your customers are satisfied and not more demanding. In this case, what kind of organization structure will you select?
Of course, you will select the functional organization structure because the functional structure is good for an organization involved in production operation.
Okay, let’s discuss another case.
Suppose your organization consists of 10 people, which is involved with small projects. Once you complete a project, you start hunting for another project. In this case, what kind of structure will you select?
In this case, you will select the projectized organization structure, because here you are dealing with only projects.
Now, let’s look at the final case.
Your organization is very big, spread out over a large geographical area and it works in a dynamic environment where customer requirements and market demand is constantly changing. In this case, what kind of structure will you select?
In this case, you cannot select the functional organization because the functional organization structure does not allow quick changes to its operations.
You can also not select the projectized structure because, although this structure supports a dynamic nature, it cannot account for other things because your organization is too big and you need some permanent functional units with supportive staff to keep your organization functioning smoothly, and this is not possible with a pure projectized organization.
Therefore, you will select a matrix organization structure. This structure has qualities of the functional organization structure as well as the projectized organization. So, you will select this structure because only this structure can support your operations and help you achieve your organization’s objective.
Therefore, you can say that an organization needs an organization structure if it wants to survive. If an organization does not have a proper structure to support its objective, it will not succeed.
Types of Organization Structure
If you search on the internet for this particular topic, you will see many theories and expert opinions that differentiate the organization into its various kinds. The types of organization structure depend on many factors, such as governing style, leadership style, type of organization, work flow, and hierarchy.
The PMBOK Guide sorts organization structure into the following four categories:
- Functional Organization
- Matrix Organization
- Projectized Organization
- Composite Organization
And Wikipedia classifies it into six categories:
- Pre-bureaucratic structure
- Bureaucratic structure
- Post-bureaucratic structure
- Functional structure
- Divisional structure
- Matrix structure
Some others divide it into following categories:
- Simple Organization
- Functional Organization
- Divisional Organization
- Matrix Organization
- Team-Based Organization
- Network Based Organization
- Modular Organization
There are other classifications available as well, but the above given classifications are more popular.
Since this blog is aligned with the PMBOK Guide and dedicated to professionals preparing for the PMP certification exam, I will therefore follow the classification given in the PMBOK Guide. At the end of this blog post, I will explain the rest of the classifications in brief.
Note: I have described the first three types of organization structure in separate blog posts; therefore, here I will give you a very short description of them with a link pointing to the detailed description.
Functional Organization Structure
This is the most commonly used type of organization structure. In a functional organization structure, the organization is grouped into various departments where people with similar skills are kept together in forms of groups; e.g. sales department, marketing department, finance department, etc. This helps organizations enhance the efficiencies of each functional group.
Matrix Organization Structure
Matrix organization structure is a hybrid of the functional organization structure and the projectized organization structure. In a matrix organization structure, you can see two command structures: vertical and horizontal. Here, an employee may be part of a functional group but he may also work on a project. This structure takes the benefits of both worlds.
Projectized Organization Structure
Projectized organization views every job as a project. Here, the project manager has full authority to complete the project successfully.
Composite Organization Structure
In a composite organization structure, organizations may use any combination of the above given types of structures.
Suppose your organization is a functional organization and it needs a small building, and your organization has the capability to construct this building on its own. In this case, your organization will create a separate small project team to complete this task.
Before ending this blog post, let’s have a brief look at other types of organization structure, those which are not mentioned in the PMBOK Guide. (Don’t expect to see a question about these types of structure in your PMP exam.)
The Simple Structure
This type of structure is suitable for very small organizations. This structure is found at the very early stage of an organization; i.e. when it has just started and is developing. Here, the authority will lie with a single person, and there will be few rules and a low specialization of work. (Some scholars call it Pre-Bureaucratic Structure.)
This is another name for projectized organization structure.
The Network Structure
This type of structure is also known as virtual corporations or virtual organizations. Here, the main organization is linked to outside firms (such as vendors, clients, associates) with a computer connection in order to achieve collective growth and profitability. This structure allows them to work as a single unit.
In a network structure, the organization keeps its core business to itself and the rest of the processes are outsourced. Sometimes this type of organization is also known as hollow corporations or hollow organizations.
The Modular Structure
In this type of organization structure, the organization outsources some part of a product. Please note: in the network structure the organization outsources the processes; here, it is outsourcing only a few parts of the product.
Pre-bureaucratic structure type organizations do not have the standard procedures and policies. This type of structure is used by a small-scale organization with few employees who handle simple tasks. It has a central command with one decision maker at the top position.
The communication is done on a one-on-one basis, and most of the time is informal.
Organizations which use the bureaucratic structure are usually larger and have standard procedures and processes. This type of structure is suitable for very large organizations which involve complex operations and require smooth administration. An example of this type of organization is the food and beverage industry where they have to follow strict rules and regulations.
Post-bureaucratic organizations are fully developed and have various standards and procedures, with a central command consisting of several board members where decision making is done by a democratic procedure.
In a post-bureaucratic structure, employees’ suggestions are taken into account while making a decision. This encourages employee participation, trust, personal treatment, and responsibility.
In a divisional structure, an organization is divided into various divisions where people with diverse skills are kept together in the form of groups by a similar product, service or geographic location. Each division has its own resources required to function properly and is capable of doing the task on its own.
The division can be based on product, service or the geographical area: e.g. Dell USA, Dell India, etc.
The Advantages of Having an Effective Organization Structure
An organization structure is the framework which helps an organization to run its operation effectively and achieve goals with minimal obstruction. The organization structure defines the relationship among the various departments and teams of the organization. It helps organizations to delegate authority, power, and responsibility.
The organization structure defines how an employee will report to his superior, which helps in coordination and cooperation within the members of the group. The main advantage of having an effective organization structure is that it reduces the friction among employees by clarifying the roles, responsibilities, and reporting structure.
Having a proper organization structure can bring immense benefits to any organization. A few of these benefits are as follows:
- It allows an organization to grow.
- It allows you to pay attention to your strategic goal, instead of each department focusing on its own agenda.
- It binds a group of people and points them towards a common goal.
- It allows employees to enhance their skills.
- It makes the decision-making process efficient, smoother, and faster.
- It facilitates specialization of employees.
- Better control and utilization of resources.
- It establishes a proper reporting system.
- It allows easier and better communication which helps in reducing conflicts.
- It allows employees to perform better.
- It helps employees grow their career and streamline new employees.
- It helps identify clear roles and responsibilities.
Every organization must have a stable structure; otherwise, there will be mess and chaos everywhere. Organization structure shows employees the clear reporting system which helps in avoiding many conflicts, and supports good communication. Organization structure is important for an organization’s smooth functioning. An organization should choose its structure wisely depending on its needs and requirements. If it fails to do so, it will hinder its growth.
This is where this blog post ends. If you have something to add, you are welcome to post your thoughts or questions in the comments section below.