Types Of Organizational Structure Business Essay


Many of the big organizations have failed to understand the importance of effect of good organizational design on their company's effectiveness and performance. Select any one organization which experienced enormous adjusting problem due to the poor organizational design and explain in detail its structure and consequences of that organizational structure.

Organization Structure is a framework, typically hierarchical, within which an organization arranges its lines of authority and communications, and allocates rights and duties. Organizational structure determines the manner and extent to which roles, power, and responsibilities are delegated, controlled, and coordinated, and how information flows between levels of management.

An structure depends entirely on the organization's objectives and the strategy chosen to achieve them. In a centralized structure, the decision making power is concentrated in the top layer of the management and tight control is exercised over departments and divisions. In a decentralized structure, the decision making power is distributed and the departments and divisions have varying degrees of autonomy. An organizational chart illustrates the organizational structure.

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Every organization, to be effective, must have an organizational structure. It is the form of structure that determines the hierarchy and the reporting structure in the organization. It is also called organizational chart. There are different types of organization structures that companies follow depending upon a variety of things; it can be based on geographical regions, products or hierarchy. To put it simply an organizational structure is a plan that shows the organization of work and the systematic arrangement of work.

An organizational structure consists of activities such as task allocation, coordination and supervision, which are directed towards the achievement of organizational aims. It can also be considered as the viewing glass or perspective through which individuals see their organization and its environment.

An organization can be structured in many different ways, depending on their objectives. The structure of an organization will determine the modes in which it operates and performs. Organizational structure allows the expressed allocation of responsibilities for different functions and processes to different entities such as the branch, department, workgroup and individual. Organizational structure affects organizational action in two big ways. First, it provides the foundation on which standard operating procedures and routines rest. Second, it determines which individuals get to participate in which decision-making processes, and thus to what extent their views shape the organization's actions.

Types of Organizational Structure

Organizations are set up in specific ways to accomplish different goals, and the structure of an organization can help or hinder its progress toward accomplishing these goals. Organizations large and small can achieve higher sales and other profit by properly matching their needs with the structure they use to operate. There are three main types of organizational structure: functional, divisional and matrix structure.

Different Types of Organizational Structures

Traditional Structures

These are the structures that are based on functional division and departments. These are the kind of structures that follow the organization's rules and procedures to the T. they are characterized by having precise authority lines for all levels in the management. Various types of structures under traditional structures are:

Line Structure - This is the kind of structure that has a very specific line of command. The approvals and orders in this kind of structure come from top to bottom in a line, hence the name line structure. This kind of structure is suitable for smaller organizations like small accounting firms and law offices. This is the sort of structure that allows for easy decision-making and is also very informal in nature. They have fewer departments, which makes the entire organization a very decentralized one.

Line and Staff Structure - Though line structure is suitable for most organizations, especially small ones, it is not effective for larger companies. This is where the line and staff organizational structure comes into play. Line and structure combines the line structure where information and approvals come from top to bottom, with staff departments for support and specialization. Line and staff organizational structures are more centralized. Managers of line and staff have authority over their subordinates, but staff managers have no authority over line managers and their subordinates. The decision-making process becomes slower in this type of organizational structure because of the layers and guidelines that are typical to it. Also, let's not forget the formality involved.

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Functional Structure - This kind of organizational structure classifies people according to the function they perform in their professional life or according to the functions performed by them in the organization. The organization chart for a functional organization consists of Vice President, Sales department, Customer Service Department, Engineering or production department, Accounting department and Administrative department.

Divisional Structures

These are the kinds of structures that are based upon the different divisions in the organization. These structures can be further divided into:

Product Structure - A product structure is based on organizing employees and work on the basis of the different types of products. If the company produces three different types of products, they will have three different divisions for these products.

Market Structure - Market structure is used to group employees on the basis of specific market the company sells in. A company could have 3 different markets they use and according to this structure, each would be a separate division in the structure.

Geographic Structure - Large organizations have offices at different place, for example there could be a north zone, south zone, west and east zone. The organizational structure would then follow a zonal structure.

Matrix Structure

This is a structure which is a combination of function and product structures. This combines the best of both worlds to make an efficient organizational structure. This structure is the most complex organizational structure.

Some Other Kinds of Organizational Structures

Bureaucratic Structure - This kind of structure can be seen in tall organizations where tasks, processes and procedures are all standardized and this type of structure is suitable for huge enterprises that involve complex operations and require smooth administration of the same.

Pre-Bureaucratic Structure - This structural form is best exemplified in flat organizations where administration and control are centralized and there is very little, if any, standardization of tasks.

Network Structure - In this kind of structure, the organization managers are required to maintain and coordinate business/professional relations with third parties such as clients, vendors and associates in order to achieve a collective goal of profitability and growth. Most of the time, these relations are maintained and tasks are coordinated via telecommunications and electronic media and, hence, this type of structure is also known as Virtual Structure.

Team Structure - Organizations with team structures can have both vertical as well as horizontal process flows. The most distinct feature of such an organizational structure is that different tasks and processes are allotted to specialized teams of personnel in such a way as a harmonious coordination is struck among the various task-teams.

It is important to find an organizational structure that works best for the organization as the wrong set up could hamper proper functioning in the organization.


Organizational structure refers to the network of relationships among individuals and positions in an organization. It can be defined as established pattern of relationships among components of the organization. It is the formal system of task and reporting relationships that controls, coordinates and motivates employees. It helps in associating them and working together to achieve organization's goals. Organization structure is like the framework of an organization. Organizational structures imply formal relationships with well defined duties and responsibilities. It also implies to the hierarchical relationships between superior and subordinates within the organization. It helps in coordinating various tasks and activities that are assigned to different persons and departments.

Organizational structure helps in having set of policies, procedures, standards and methods of evaluation of employee's performance. It should be developed as per needs of the people in the organization.

Organizational structure plays significant role in effective and efficient functioning of organization. There are many significance of organizational structure and they are as follows:

1. Clear cut authority relationships: Organizational structure helps in delivering authority and responsibility among employees in an organization. It signifies the duties and responsibilities concerned with particular post to concerned persons. It helps in recognizing roles for each employee and his accountability to the organization. It also correlates relationships of one organizational member to the other members.

2. Pattern of communication: It provides the patterns of communication and coordination in an organization. Organizational structure helps in grouping activities and people and so it facilitates communication between people centered as their job activities. The sharing of information helps person in solving their joint problems.

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3. Location of Decision Centers: It determines the location of centers of decision making j in the organization.

4. Proper Balancing: It helps in creating proper balance and lays emphasizes on coordination of group activities in the organization.

5. Stimulating creativity: An efficient and sound organization structure provides well defined patterns of authority that stimulates creative thinking and initiative among members of the organization. Every organizational member understands his power and utilizes it to perfection to get appreciation in the organization.

6. Encouraging growth: It provides the framework within which an enterprise functions. If the structure of organization is flexible then it will help in meeting challenges and creating opportunity for growth. It helps in facility growth of the enterprise by increasing its capacity so that increased level of activity can be handled.

7. Making Use of Technical Improvements: Adaptability to the change in a sound organizational structure and in making maximum use of latest technology. It modifies the existing pattern of authority responsibility relationship in respect to the technological improvements in the organization.


Cisco Systems, Inc. (Cisco), an Internet technology company, had an organizational structure comprising of various cross-functional teams. The key decisions in the company were taken by councils, boards and working groups. These committees (around 60 as of 2009) working at different levels were cross-functional in nature, and according to the company, lent Cisco speed, scale, flexibility, and rapid replication.

Cisco had made the shift to this type of organizational structure in 2001 and had refined it in subsequent years. According to John T. Chambers (Chambers), the Chairman and CEO of Cisco, the company had reorganized to break free of the silo culture in the company prior to 2001, so that it could remain agile and innovative in a rapidly changing industry.

The company felt that the traditional command-and-control model had lost its relevance, and the future would be about collaborate models of decision making. He also claimed that the new organizational model had served the company well and helped implement its aggressive growth strategy amidst the economic downturn.

Industry observers and organizational experts were divided in their opinion about Cisco's organizational structure and approach to decision making. While some industry observers felt that such a model was effective, others felt that the management-by-committee approach would slow down decision making and impede innovation. Some experts were extremely critical of Cisco's organizational model. But others believed that if Cisco could further refine the model by addressing some of the lacunae associated with it, it could very well be adopted more widely and be accepted as a radical management innovation.


» To understand the various issues and challenges associated with organizational design.

» Discuss the pros and cons of different types of organizational structures and in the light of this analysis, critically analyze Cisco's organizational structure.

» Discuss the pros and cons of Cisco's approach to decision making.

» Discuss ways in which the organizational model at Cisco can be improved further.

Complex Organizational Web for Effective Decision Making?

As a leader in switches, routers and other Internet technology, the US-based Cisco System, Inc. (Cisco) likened its business to that of a plumber, i.e., a plumber of the Internet.

However, in the first decade of the new millennium, the industry Cisco operated in had changed drastically with the fast pace of technological change and consolidation in the industry. The challenge before Cisco was how to change its business processes so as to cater to the changing market. According to John T. Chambers (Chambers), the Chairman and CEO of Cisco, "The future's about, how do you add intelligence to that plumbing? And how do you do it architecturally from a technology point of view, going from any device to any content over any combination of networks and data, voice, video? Sounds simple; really complex with security and predictability. But how do you change the business process?"... AccoladesSome industry observers and analysts felt that Cisco's organizational structure and its collaborative approach to decision making was an effective one - potentially the organization of the future. "Now instead of a small group of executives telling everybody else what to do, people have authority to figure out for themselves what to do...

Background Note

Cisco was founded by a group of computer scientists, who had together designed a software system named IOS (Internet Operating System), which could send streams of data from one computer to another

Cisco's Organizational Structure

Right from its initial years, Cisco had a flat organizational structure. Over the years, the company had brought about certain changes in its organizational structure focusing on cross functional teams...

Rationale of the Reorganization

Speaking about the organizations structure, Chambers, said, "Our organization structure leverages the power of communities of interest which we call councils which we believe are $10 billion opportunities, boards that we see as $1 billion opportunities and working groups...

How it Started

The idea for the new structure occurred during the economic down turn in 2001, when Cisco wrote off US$2.2 billion in losses. Realizing the Cisco's hierarchical structure was preventing it from moving fast, Chambers started grouping executives into cross-functional teams...


In late 2008, while Cisco's stock was witnessing a decline, analysts said that the company was still in a strong financial position with US$26 billion in cash. "Not only do we have the $26 billion, we now have 26 new market adjacencies that are not relevant to our revenue today, but they will be three to four years from now," said Chambers...


Some industry observers and analysts felt that Cisco's organizational structure and its collaborative approach to decision making was an effective one - potentially the organization of the future. "Now instead of a small group of executives telling everybody else what to do, people have authority to figure out for themselves what to do...


However, some analysts and ex-employees of Cisco were not happy with the new organizational structure at Cisco. The structure led to chaos and slowed down decision making at times, they said. "Right now it's chaos because there's so much on everybody's plate," said Geoffrey Moore, a management consultant who has worked with Cisco...

Cisco's Response

Chambers acknowledged that his critics could be right in their criticism of Cisco's organizational structure and its approach to decision making. However, he said that the company had arrived at its organizational structure after giving a lot of thought to it, continuously refining it since it was introduced in 2001...

Looking Ahead

In November 2009, speaking about Cisco's future strategy, Chambers said, "The improving economic outlook combined with what appears to be a very solid execution on our growth strategy due to our organization structure and innovative business model enabled Cisco to move into 30 plus market adjacencies while reducing non-GAAP operating expenses by 10% year over year and also reducing headcount."...