4 Structure of Business Organisation

4 Structure of Business Organisation

Here are different types of organisations. Some organisations may be focused on products, some on process, some on function and other on region. Having differences in working styles, all the organisations have one thing in common: they all want to manage their organisation efficiently. Structure of an organisation helps in running the organisation efficiently.

The structure of an organisation depends on how the people running the organisation want it to be operated. Selection of structure depends upon the size and operations of the organisation.

The reason to have a structure is to organize the operations of an organisation. A good business structure defines the motives, the roles, the authority, the duties and the flow of information. Its main aim is to ascertain that there is no conflict of interests, duties, roles and chain of command are carefully defined and proper communication.

There are basically four types of organisation structures prevalent: (1) Entrepreneurial Structure, (2) Functional Structure, (3) Divisional Structure and (4) Matrix Structure.

Basically Four Types Of Organisation Structures

Entrepreneurial Structure

Also known as Pre-Bureaucratic Structure is in fact, no structure at all. This structure is applicable to very small organisations and start-ups where manpower is limited and there is single authority.

Entrepreneurial Structure

There is no roles defined and everyone is responsible for every work and everyone is expected to do every job. The communication is informal and very fast. As the organisation grows, its structure changes and it adapts to more complex structure.

Functional Structure

In this structure, the organisation is divided into segments; based upon it functions and similar work. All the activities off the organisation is divided into different functions, such as sales, finance, production, marketing, research, personnel, IT, etc. and is function managed by its respective functional head. These functional heads reports to the CEO or to any head as designated.

Functional Structure

In this type of structure each functional department only staffs those people who are competent in that particular function. For example, the finance department will only have people whose core competencies is finance and this department will not have any people from marketing or production. Similarly the production department, will only staff people who are in production. There may be further functional divisions within a functional department. A finance department may have further departments, such as, costing, banking, capitals, etc.

The functional structure leads to high specialisation of work. Each department focuses only on its own area of work. There is clarity of work as each one has their work defined and everyone knows theirs and other’s responsibilities. Accountability is clearly defined in this structure and person can be held responsible for completion or non-completion of work.

This structure may also lead to very restricted or no communication between two functional groups which may become cause conflicts with other groups. There may also be cases of one group becoming more influential than other.Over a period of time, the departments in this structure become resistant to change, and implementing change becomes very difficult and expensive. Communication between top to bottom takes time because there is wide gap between them.With all its advantages and disadvantages, this is most prevalent organisational structure.

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Divisional Structure

In this structure the organisation is divided into divisions. A division is made on the basis of product, process, place, area, domain, region or any other parameter. A division is fully equipped to do all the functions required to do a work. For example, a manufacturing company that makes television, projectors and laptops; may have divisions on the basis of its products, i.e. separate and individual divisions for television, projectors and laptops.

It will have its own sales, accounts, administrative or any other functions that is required for its operations.Another company that is on multi-location and its business is spread over many countries, may have its division based on location, i.e. a separate division for every country. Each division will be treated as a profit center and managed accordingly.Division based on products or processes provide a sharp focus on market segment and customer needs are met more objectively.

Divisional Structure

The control is better as area of focus is limited to that division only. Division based on products also leads to duplication of functions, different people doing same work; i.e. having different sales team for different products.When division is based on location or area it gives flexibility to the organisation to serve local needs better. Identification of local needs is faster and there is better communication between local customers and the organisation.This structure also leads to conflicts between local and parent management.

This type of structure is generally adopted by large multinationals that has presence in many countries or by production houses, whose sale of one product range is large enough to cater to this type of division.It is also interesting to note that on macro basis large organisations opt for divisional structure; and for micro administration, they go for functional structure. In very large organisations it’s common to find these two types of business structure working together.

Matrix Structure

The matrix structure is amalgamation of both functional and divisional structure. Here people are assigned on the basis of function, product and area.The idea is to take the best of both functional and divisional structure. The success rate of this structure is not encouraging because often there is ambiguity in chain of command and people do not know whom to follow for directions. The responsibility of work is not clearly defined, so it’s difficult to held people responsible for work not done. There is also lack of focus as one person is responsible for more than one products or places.

Matrix Structure

This structure works very well for the organisation that has matured, people are self motivated, specialization is less and supervision is not required.No structure is good or bad, it all depends upon the requirement of the organisation. An organisation starts with the Entrepreneurial Structure, gradually moves to Functional structure, then to Divisional structure followed by adopting both divisional and functional structure in parts. And when it has fully matured goes for the Matrix structure.It’s upon you to decide which structure fits best in the organisation, in that given moment of time.