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What are commonly used organization structures?

Organization structure refers to the design of an organization that identifies the organization’s hierarchal reporting and authority relationships. An organization’s structure is related to the work that it does and also to how jobs are designed.

Typical structures include:

Functional structure. Functional structure positions each department so that employees report directly to managers within their functional area who in turn report to a chief officer of the organization. This structure works best for organizations that remain centralized (i.e., a majority of the decision making occurs at higher levels of the organization) because there are few shared concerns or objectives between functional areas (e.g., marketing, production, purchasing, IT). Because of the centralization of decision making, the organization also can take advantage of economies of scale that would not otherwise occur if each independent functional area were to make its own buying decisions.

Divisional structure. A divisional structure is a flexible construct that arranges the organization by product, market or region. For example, consider a business that sells men’s, women’s and children’s clothing through retail, e-commerce and catalog sales in the northeast, southeast and southwest. The company could be using a divisional structure three different ways:

  • Product. Men’s wear, women’s wear, children’s clothing
  • Market. Retail store, e-commerce, catalog
  • Region. Northeast, southeast and southwest

Each structure works because the divisions have shared needs and can/should collaborate. Collaboration can occur with shared vendors, products, customer-bases, distribution processes, etc. Because decision-making authority is pushed to lower levels of the organization, it allows for faster, customized decisions. Moreover, employees have two reporting directions: a straight line reporting to their divisional head, and a dotted-line reporting relationship to their functional manager. This provides an opportunity to keep employees’ tasks linked to divisional needs as well as connected to their functional operations and objectives.

Matrix structure.Often the most complicated structure for employees, the matrix structure requires two direct reporting lines: one to the divisional manager and one to the functional manager. While the business unit arrangement is similar to the divisional structure, the dual chain of command necessitates a great deal of cooperation between the two direct supervisors to determine an employee’s work priorities, work assignments and standards of performance.


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