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Four Types of Organisational Structure

Categories: Structure

Organising is therefore the method by which an organisation is formally controlled into divisions or operational units and the structure of the firm is established. The end product of management process is organisational structure. Organisational structure binds the all level of management personals together and brings them into proper development and co-ordination of organisation. It is tasks arrangement which is break up into a few divisions or departments and grouping it together under the management hierarchy to achieve the organisation objectives.

Under the organisation structure, one single path will create to attach the tasks, work flow and communication channels between the personals and the various divisional peoples of organisation. Organisation structures smooth the progress of efficient management, direction and control. Every administration has to set up its own organisation structure for well-organized perform of business actions. An organisation structure usually represent in graphical form which is called an organisation chart.

Usually, the chart illustrated in the form of vertical, horizontal or concentric to define the authority and responsibilities of personals in various levels.

The chart always created according to the existing departmentalisation of organisation. In departmentalisation, each personal from different job segments will work to achieve an aim of pre-determined organisational objectives. The departmentalisation is based on five structures, which is functions, products, consumers, geographical and matrix.

In these papers, we will go through the justification of four structure which is function, product, geographical and matrix with sample organisational chart on each structure.  Sample Organisation Chart of Functional Structure. Source: SIA Cargo Pte Ltd Functional organisation structure is the most common and logical type of business unit that adhere by companies.

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In this structure, people are group together based on common skills and work activities. It focuses on single service and doesn’t need frequent changes in organisational hierarchy.

Base on above organisational chart, we can notify that the total organisation system is coordinating by top management. For a proficient management function, the organisation breaks up into a few departments such as marketing, engineering, technology, operational and etc. Each departments lead by a senior manager or vice president who are reporting to a single authority, top management. As the simplest approach, a functional structure sort well-defined channels of communication and influence relationship.

Each department’s staff needs to report to their only functional unit’s manager and by doing this, the various business unit’s prevent any kind of misunderstanding or conflicts among them. The chart hierarchy is simplified, well-organised and the separation of tasks also well defined with layer by layer. The fewer layer of management will ease the expectation of top management and also improve the task co-ordination. Decision making process is swift and authorities in functional structure.

Because of the staffs in functional structure come from similar background and perspectives, so it wills faster the process of the decision-making without waste of time. Since the every business units in structure workout in similar background, it might cluster the processing of the papers together and highly improving the knowledge sharing between co-workers. Sharing knowledge make the organisation more productive and competitive where the experience personals such as managers often coaching and mentoring the less experience personals of each units through seminar or workshop.

Functional structures produce clear career hierarchy organisation members to go after. Managers within a functional structure are generally skilled within their particular unit. They were hiring to lead the units due to their tremendous performance. These managers have a better-quality skill level that facilitate make their profession easier and makes them better capable of to monitor the individual act of their team members to allocate credit, rewards and penalty accordingly. A functional structure may draw some setbacks to organisation. It controls people and assets and build up core competences.

As a company develop and becomes more difficult, each function tries to retain the company’s situation. Increased order may strain manufacturing to manufacture products quick enough or in sufficient capacity may lead to control problems. When control problems arise, it also strains the situation in evaluating the cost and contribution of each function. Other drawback is communication problem. Poor communication occurs within the organisation due to subunit orientation. The top management find it hard when balancing the process of decision making between centralise function and regional managers.

The top managers might disrupted by solving a daily problems and may loss focus on long term strategic issues, resulting in long term strategic direction.  Sample Organisation Chart of Geographical Structure. Source: SIA Cargo Pte Ltd Geographical organisation structure is usually used by big firms whose operations are spread out over a large geographical area, for instance, multinational companies which market their service worldwide. Hotel, retail, food and transportation are among the industries which is widely using the geographical structure in their management.

The whole organisation will lead by a president and one person will be responsible for an each particular region. According to above SIA Cargo chart, business units were set up at six different geographic locations and each regional branch head by Regional Vice President. The branch Vice Presidents will report to Senior Vice President. The expansion of business units can be local, national or international. In geographical structure, the organisation stick on company strategies and values although operates individually. It operates as its own unit based on where it located.

In this structure, each personnel from various departments have prospect to work together. Working as a group will form a strong teamwork effort and keep them in the process of planning and decision making. Beside this, everyone in the departments will have an ability to recognize the personalities and values of each individual. Close working proximity lead to decentralise the process of decision-making and make organisation to settle in rapid changes in divisional goals. In each region, a local or personnel who familiar with local business environment and culture will be employ to head the business units.

It ensures that the company well understand the customer expectation and needs. Base on local knowledge, the departments heads able to create a high coordination and effective process of decision making across the functional units. The regional heads ensures the company strategies adaptable to local culture and suit to fast change in unstable environment. In divisional structure, usually the departments act as a group. It allows the responsible personnel to put on better focus in their resources and results. It also makes the performance easier to monitor the customer service quality.

A personal that understand and speak the local language, will satisfy the customer expectation because the contact points are clearly explain. Customer service personnel will also have better access to personnel from other units, which can allocate them to handle the customer matters much more efficiently. With geographical structure, following the routine of individual markets and task groups is cut down, as metrics such as revenues, profit margins, costs, and routine enhancement can be attached to particular regions. It is a most important strategic advantage of this structure.

Many problems might incur for the companies whom use geographical based structure. Some companies may find it complicated to run a geographic organizational structure because it duplication of works and disagreement to centralized decision-making. The top management must rely on other regional heads to take counteractive actions and look up operations rather than giving a command from the company’s main office or headquarters. It may lead the company top management loss the authority in controlling the divisional units. Another limitation is expansion of knowledge.

Usually, the structure does not maintain the knowledge sharing between people working in the same line of work because part of them is working in one division and the others are working in other divisions. Sample Organisation Chart of Product Structure. Source: Arla Foods Ingredients Above chart is an Arla Food Ingredients organisation chart. The chart is a product based organisation structure. Product-based structure means the regrouping of a functional structure and uses to organise employees and work on the basis of different type of products.

This type structure brings together all those involved in the production skills, technical skills and marketing skills of a particular product or set of related products. Each division in structure has its own internal departments and function as self business unit. Companies that manufacture a wide variety of products such as cars and foods would find this type of structure appropriate to their organisation. Many companies tend to shift to product based structure as they expand, and as new products range are developed and new markets entered.

Product based companies have no direct contact with their customers. Initially, they need to assess the market segments and develop the product from their assessment. Follow that, they must determine the price of products in line with the customer’s expectation and produce the products to sell in the market. Product based structure is also have a similar function as geographical structure. In Arla Food Ingredients, both product structure and geographical structure group together in the organisation. It will add much better clear focus on market segments and help to meets the customer’s expectation.

Each division of products will be operates base on individual performance. It keeps up the positive competition between the divisions and allows the directors or managers to have better be in command of each division can act as separate profit centre. In this structure, division members are more likely to be persistent on products. It deals with the technological transform by grouping personnel with skill and their specialised equipment in one business unit. So, the division heads have a lot of control over operations and will not necessary to depend on another, separate area to get things done.

The department managers will keep an eye on design and manufacturing activities, and employees become reliable to product not to function. It also allows the managers and employees to improve and expand their skills and knowledge in the organisation. The customisation of more products into division will lead to save time and cost. Decentralisation of process of decision making will facilitate rapid decision making results with effectively. It will reduce the risk of product failure and also bring on improvement in employee morale due to divisional decision making.

Instead of better operational controls, the organisation can avoid the poor communication within the personnel’s which is bring to slow development of products. By the way, there is some limitation might happen when use the product base structure. An example, each product division has R;D department. When product expansion incur, number of personnel in R;D will increase. This increment will happen to each product divisions. So, it will lead to duplication of works and increase the costs of staffs. Since the divisions separately monitor, the difficulty might happen to top management to coordinating them together.

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Four Types of Organisational Structure. (2018, Sep 04). Retrieved from

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