Which structures combines functional and divisional chains of command to form a grid with two command structures?

The types of organizational structures in business are just as important as its products, marketing plan and long-term strategy. Businesses need a sturdy structure to attract and retain talented employees, as well as create a workable organizational hierarchy.

Typically, businesses choose from four types of organizational structure. Each comes with its own set of advantages and disadvantages. Choosing the right one for your business is imperative because poor organizational structure leads to confusion among employees, poor decision-making among managers and, ultimately, less than ideal results for a business.

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Picking The Right Organizational Structure

While there are variations, most companies are created based on one of the following four organizational structures. The goal for business leaders is picking the structure that works best for their particular situation.

Functional

A functional structure is the most traditional approach. It calls for grouping together people who do similar tasks based on their area of specialty. In other words, you’ll find all the accountants in finance and all the marketers in marketing. Managers led each area and report up to a director or executive who may oversee multiple departments.

The advantage here is clear: it provides those with similar abilities the ability to easily communicate and work on projects together. That’s also the reason this is the most popular business structure. The disadvantage is that teams may get “siloed,” unaware of what is happening in other areas of a company.

Divisional

In a divisional structure, people are grouped together based on the product or service they provide, not the work they do. For example, a large corporation such as General Electric has divisions for electronics, transportation, and aviation, each with its own team of accountants, marketers, etc. Global corporations may have divisions based on different geographic areas. On a smaller scale, a restaurant that also provides catering services may have separate divisions to oversee weddings, corporate events and business within the main restaurant.

Matrix

A matrix structure is a hybrid of the functional and divisional structures. It may involve employees reporting to different bosses depending on their current assignment. For example, a software design specialist may report to her boss in IT, but she’s also brought onto specific projects because of her expertise. When that happens, she will report to a different boss as long as that project continues.

The disadvantage is that employees may find it confusing to report to multiple bosses. But clear communication on priorities at all levels can eliminate these issues. The matrix structure requires a great deal of planning but can allow for the creation of the best possible teams to tackle the biggest challenges.

Flat

The flat structure dispenses with the usual hierarchy of a functional structure, decentralizing management and doing away with the need for middle manager bosses. Employees essentially act as their own boss, giving them the ability to communicate directly with peers on ideas and projects.

The advantage is a lot more freedom for employees, which requires a group of self-starters who don’t need managers checking up daily on their work. A flat structure is common in incubators and startups where the focus is on product and services design, not production or top-down management structures.

All four types of organizational structures in business can work well in the right situations. While most companies will choose from the functional or divisional approaches, a flat approach is becoming increasingly popular with modern companies.

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Several factors determine the type of organizational structure that a company uses: revenues, number of employees, diversity of products, types of customers and geographical spread. Smaller companies have more informal cultures while larger corporations are more formal and bureaucratic.

Three forms of organizations describe the organizational structures that are used by most companies today: functional, departmental and matrix. Each of these forms has advantages and disadvantages that owners must consider before deciding which one to implement for their business.

The most common organizational structure is the functional or departmental form. In this structure, all of the employees of a specific function are brought together to form a department. Examples of these individual departments are sales, accounting, marketing, finance, research and production.

A functional structure has a firm hierarchy; each department has a separate management staff and upward reporting lines of authority. A department manager may report up one level to a vice-president who might be in charge of several departments, such as finance, marketing and IT. This vice-president could then report to the CEO of the company.

Functional organizations are effective for large corporations with homogeneous product lines. Smaller companies need structures that are more creative and can adapt more quickly to changes in the marketplace. Employees in small organizations may be responsible for several functions at the same time.

Advantages: A significant advantage of a functional structure is the focus and concentration of a group of specialists on their particular skills. Putting all of the company's marketing personnel together in one department allows them to more easily share ideas to improve their expertise and become more efficient. Training is more focused on the functional area.

The chain of command is clear in a functional structure. Each person knows the limits of his decision authority and when to pass the issue to a supervisor.

The opportunity for promotion is usually clearer in the departments. Junior positions can aspire to higher levels with more training and experience.

Disadvantages: A disadvantage of the departmental structure is the limitation to communication between employees in different departments. While the managers of each department may talk with each other, employees are more isolated from each other and don't have naturally open avenues of communication.

Another problem with a functional structure is the possibility that employees will only see the company's operations through the lens of their own occupations. They develop "tunnel vision," which prohibits them from seeing the strategic direction of the business and the viewpoints of people in other departments. Employees with this narrow focus have difficulty grasping the views and perspectives of other departments. This is also known as the "silo" effect.

Recent attempts have been made to solve this communication problem by creating teams with members from different departments.

A divisional structure organizes a company's activities into geographical, products, markets or service groups. As example, a company might have one division to handle sales in the United States and another for European sales. Or a division to manage blue widgets and another to handle green gizmos.

Each division would have a complete set of functional departments. Thus, the green gizmos division would have its own departments for sales, purchasing, accounting, finance, engineering and so forth. Companies with numerous products, markets or regions prefer to organize their businesses into divisions.

Advantages: Accountability is clear with divisional structures. Each one operates separately and is responsible for managing its activities. The results, good or bad, are easily identified.

A divisional structure works best when quick decisions are needed to react to rapidly changing market conditions. Local managers are in a better position to respond sooner to competitive threats rather than having to pass information up a chain of command and wait for a decision to come back down.

Employees in divisions develop their own unique cultures. For example, personnel in a division set up for retail customers become more closely attuned to the needs of their market demographics and can tailor their activities to those wants.

Disadvantages: Divisions cost more to set up and operate. When a corporation has numerous divisions, the total number of employees will likely be higher compared to an organization aligned into functional departments. The same functions when spread across several divisions will not be as productive and efficient as when they are concentrated in a single department.

Companies with separate divisions may lose the benefits of economies of scale. Take purchasing, for example. A corporation might get better discounts for office supplies when purchasing large quantities for all divisions together rather than placing smaller orders at the division level.

Inter-divisional rivalries can become a problem when division managers don't have incentives to work together. Managers may even work against other divisions to gain an advantage since they have clear accountability for the results of their own division and don't care about the performance of the corporation as a whole.

Companies that are creating and launching new products or initiating different marketing campaigns will form matrix structures to manage the projects.

A matrix organizational structure attempts to gain the benefits of functional organizations by combining specialized skills into a project grid. Matrix organizations are designed to foster cooperation between functional silos so that similar activities can be managed more efficiently to achieve a common goal.

Matrices have two chains of command: one for the project and another for the functional skills which are brought into the project. Project managers have authority horizontally across the departments. At the same time, employees still report to the department heads for their function.

Advantages: When a matrix organization is created, it has a clear objective. It may be to introduce a new product or design a new marketing campaign for another demographic. A matrix can be dissolved once its mission is complete.

A matrix project organization structure pulls together the employees with the particular skills and knowledge required for the project. This gives the employees the ability to work with co-workers from other disciplines as teams. Together, they communicate better and share more innovative concepts that are isolated by the silos of departmental and functional organizations.

Disadvantages: Matrix structures are more complex. Lines of authority run vertically and horizontally with employees working for two bosses. Employees can often receive conflicting directives from project and functional managers, creating stress and confusion when setting priorities.

Managers for matrix projects need special talents. Since they don't have singular authority, they must be able to compromise and negotiate. They need to have tolerance for conflict and be able to handle difficult situations.

Deciding on the best organizational structure for your company is critical to success. It requires thought and analysis about which structure will work at the moment and if it can be adapted to remain effective with growth. Making changes in organizational structure can be painful for management and employees, so it is important to get it right at the beginning. Describe how the firm is organized now and look to see which form would make the most sense.