An Organisation structure is the outcome of the organizing process and usually depends the objectives and strategy of an organization. An effective structure will result in increased profitability of the enterprise. The need for an adequate organisation structure is felt by an enterprise whenever it grows in size or complexity. When an organisation grows, coordination becomes difficult due to the emergence of new functions and increase in structural hierarchies. Thus for an organisation to function smoothly and face environmental changes, it becomes necessary to pay attention to its structure.
Peter Drucker emphasized on the importance of having an good organisation structure –
“Organisation structure is an indispensable means; and the wrong structure will seriously impair business performance and even destroy it.”
Types of Organisation Structure
The organisational structure can be classified under two categories which are as follows –
(A) Functional structures – It involves grouping of jobs of similar nature under functions and organizing these major functions into separate departments . All departments report to a coordinating head. For example – in a manufacturing concern division of work into key functions will include production, purchases, marketing, accounts and personnel. These department may be further divided into sections. Thus a functional structure is an organisational design that groups similar or related job together.
(i) A functional structure leads specialization since emphasis is placed on specific functions. This promotes efficient utilization of manpower as employees perform similar tasks within a department .
(ii) It promotes control and coordination within a department due to similarity of tasks being performed.
(iii) It helps in increasing managerial and operational efficiency and thus results in increased profit.
(iv) It makes training of employees easier as the focus is only on a limited range of skills.
(i) A functional structure may place more emphasis on objectives pursued by a functional head and less emphasis on the overall objectives of the enterprise .
(ii) It may lead to problems in coordination as information has to be exchanged across functionally differentiated departments.
(iii) There may be a conflict of interest between of two or more departments.
(B) Divisional Structure – A divisional structure is usually found in large organisations which have more than one product category or product line. It involves grouping of all functions required to produce a specific product or product line into one division or department. Each division is headed by a president or general manager who is responsible for the working of that division and is also accountable for its profits or loss. Each division is self-contained with a separate business or profit center.
(i) Product specialization helps in the development of varied skilled in a divisional head and this prepares him for higher positions. This is because he gains experience in all functions related to a particular product.
(ii) It promotes flexibility because each division functions as an autonomous unit which leads to faster decision making.
(iii) Revenues and costs related to different departments can be easily identified and assigned to Divisional heads accountable for profits. This provides a proper basis for performance measurement.
(i) Conflict may arise among different divisions with references to allocation of funds and further a particular division may seek to maximize its profit at the cost of other divisions.
(ii) It may lead to increase in costs since there may be a duplication of activities across products.
(iii) There may be a conflict between organisational goals and divisional goals.