Reporter: Nathalie Faye B.

Taja

Lesson 7c: Types of Organizational Structures

Organizational structures have undergone significant transformations over the years. In the
past, organizations were typically organized in rigid, top-down systems where decision-
making was centralized and control was concentrated at higher levels of the hierarchy.
These traditional structures were characterized by clear, vertical integration, and autocratic
management, which often led to slower responses to changes in the market and less
flexibility in addressing customer needs.

Today, however, the trend has shifted towards more flexible and adaptable structures.
Modern organizations are increasingly designed to be boundaryless and empowered,
meaning they operate with fewer rigid boundaries and are structured to quickly respond to
consumer demands with tailored products and services. This shift reflects a move towards
creating organizations that are better equipped to handle the fast-paced and ever-changing
business environment.

In contemporary settings, organizations can generally be categorized into several types

based on their structural configurations:

1. Vertical Structures: These include:

 ○ Functional Structures: In this setup, the organization is divided into

departments based on specialized functions such as marketing, finance, or human
resources. Each department operates under its own set of responsibilities, and the
structure is characterized by a clear hierarchy within each function.
 ○ Divisional Structures: Here, the organization is split into divisions based on
products, services, or geographic regions. Each division operates semi-
independently and is responsible for its own performance, allowing for more focus
on specific areas of the business.

2. Vertical and Horizontal Structures:

 ○ Matrix Structures: This structure combines elements of both vertical and

horizontal designs. Employees report to both functional managers (based on their
roles) and project or product managers (based on the projects they work on). This
dual reporting system aims to enhance flexibility and coordination across different
functions and projects.

3. Boundaryless Structures (also known as "open boundary" structures):

 ○ Modular Structures: In a modular organization, different parts or units of the

organization operate independently but are connected to the central organization
through coordination mechanisms. This allows the organization to adapt quickly to
changes and integrate new capabilities as needed.
 ○ Virtual Structures: These rely heavily on technology and remote work. Virtual
organizations consist of teams and individuals who work together from various
 locations, often using digital tools and platforms to collaborate effectively despite
physical distance.
 ○ Cellular Structures: This model features small, self-contained units or teams that
operate independently within the larger organization. Each unit is responsible for
a specific aspect of the business and is designed to be highly flexible and
responsive to change.

These modern organizational structures are designed to enhance adaptability,

collaboration, and efficiency, allowing businesses to better meet the demands of a dynamic
market and deliver customized solutions to their customers.

Lesson 7d: Vertical Structures (Functional and Divisional)

Vertical Structures are typically divided into two main types: functional and divisional.

Functional Structure

A functional structure organizes a company based on specialized roles and expertise. In this
setup, the company is divided into departments that handle specific functions, such as
production, sales, research and development, accounting, human resources, and
marketing. Each department focuses on a particular area and becomes an expert in that
field. Employees report to managers within their respective departments, and these
managers’ report to top executives.

Advantages of a Functional Structure:

 ● Expertise Development: Employees become highly skilled in their specific areas.

 ● Focused Work: Individuals handle tasks they are best at, leading to higher
efficiency.
 ● Clarity: The structure is straightforward and easy to understand.

Disadvantages of a Functional Structure:

 ● Coordination Issues: Departments may work in isolation, leading to poor

communication and coordination.
 ● Difficulty in Collaboration: It can be challenging to promote teamwork across
different functions.
 ● Resistance to Change: The structure can be slow to adapt to changes in the
market or industry.

Divisional Structure

A divisional structure divides a company based on different criteria such as product lines,
geographic regions, or market segments. This type of structure allows each division to
operate independently and focus on its specific area.

For example, a company might use a divisional structure in one of these ways:
  ● By Product: Separate divisions for men's clothing, women's clothing, and
children's clothing.
 ● By Market: Separate divisions for retail stores, e-commerce, and catalog sales.
 ● By Region: Separate divisions for the Northeast, Southeast, and Southwest.

Advantages of a Divisional Structure:

 ● Focused Expertise: Each division can concentrate on its specific market or

product, leading to specialized knowledge and skills.
 ● Improved Coordination: Divisions can work more closely together on related
projects and share insights.
 ● Faster Decision-Making: Decisions can be made more quickly at the division
level, allowing for more tailored responses to local needs.

Disadvantages of a Divisional Structure:

 ● Efficiency Loss: Each division may duplicate efforts, such as having its own
research and development or marketing teams.
 ● Resource Duplication: Multiple divisions may acquire the same resources,
leading to inefficiencies.
 ● Reduced Interaction: Employees in similar roles might have fewer opportunities
to interact with their peers in other divisions.
 ● Competition for Customers: Divisions might compete with each other for the
same customer base.
 ● Higher Costs: Divisions may purchase similar supplies in smaller quantities,
potentially leading to higher per-unit costs.

Lesson 7e Matrix Organizational Structures

A Matrix Structure blends elements from both functional and divisional structures, creating
a system where employees have dual reporting lines. In this setup, each employee reports
to two managers: one who oversees functional aspects like finance, human resources, or
marketing, and another who manages a specific business unit related to products, services,
customers, or geographical regions.

A typical Matrix Organizational Structure might look like this:

Figure 3.

Advantages of a Matrix Structure:

 ● Integrated Approach: Combines functional expertise with business unit focus,

improving how work is organized and executed.
 ● Cost Efficiency: Shares key resources and personnel across different projects or
units, reducing overall costs.
  ● Balanced Operations: Achieves a better balance between the speed of
completing tasks and controlling costs.
 ● Comprehensive View: Provides a holistic view of products or services that may
be developed in multiple locations or sold in different markets.

Disadvantages of a Matrix Structure:

 ● Unclear Responsibilities: The dual reporting lines can lead to confusion about
who is responsible for what, complicating management and oversight.
 ● Confusion and Conflict: Employees may struggle with having to report to two
managers, which can lead to confusion and conflicts between the managers’
demands.
 ● Coordination Challenges: The need for collaboration between two managers to
set priorities and performance standards can be challenging.
 ● Increased Stress: Conflicting demands from both managers can increase
employee stress and potentially impact performance negatively.
 ● More Meetings: Employees may spend more time in meetings and coordinating
with others, which can be inefficient.

Matrix structures are particularly useful in project-driven industries like construction,

where teams are formed for specific projects and then disbanded. In such settings, each
project manager reports to both a vice president and a general manager, with projects
often operating as mini profit centers. This setup allows for better visibility and control over
complex processes and business areas.

However, matrix structures also bring challenges for human resources (HR) professionals,
who must ensure fairness and equity across the organization. HR must be proactive in
communication and training to manage these complexities. Additionally, HR needs to
monitor and manage the relationships between the managers who share direct reports, as
these relationships are critical to the success of the matrix structure.