Organization Design – Types of Organization Structure

Organization Design refers to the process of creating hierarchy in the organization structure and determining the flow of responsibility and authority within the structure in an organization.

An Organisation structure is the outcome of an organizing design and usually depends the objectives and strategy of an organization. It also determines the hierarchy within the organisation and the information flow between different levels of management.

An effective organization design will result in increased profitability of the enterprise.  The need for an adequate organisation design 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.

Organizational Design defines how various tasks that have to be carried out to achieve organizational objectives are to be divided and how the available resources are to be deployed.

Types of Organization Design

Line organization

Under such structure all managers have direct authority over their respective subordinates through a chain of command. Under such organizational design, authority flows downwards and responsibility flows upwards throughout the organization. Each employee knows who their superior is and who has authority to issue orders. Every superior has line authority i.e. the right to give orders and to have decisions implemented.


  1. It is easy to understand and follow.

  2. Responsibility is fixed which facilitates fixation of accountability for non-performance.

  3. Direct line of authority enable a manager to take quick decisions.

  4. It is a flexible system. Therefore it enables managers to adjust policies and procedures according to the changing business needs.

  5. It is inexpensive and economical, as no specialists are needed and limited number of executives are employed.

  6. It facilitates easy supervision and control.


  1. Lack of specialization

  2. Lack of coordination among different departments

  3. No participation of lower officials in decision making

  4. Dependence on performance of top management and scarce talent

Functional organization

Functional Organization Design involves grouping of similar jobs under functions and organizing these major functions as separate departments. Each functional unit has different set of duties and responsibilities and all departments report to a single coordinating head. Under such an organization design, line authority, staff authority and functional authority exist together.


  1. Specialization – Each department is headed by a specialist.

  2. Division of labour up to managerial level brings order and clarity.

  3. It provides economies of scale within functions.

  4. It encourages skill development and provides scope for growth.

  5. Eases the burden on top management

  6. As each superior is an expert in his/her area it leads to effective and efficient planning and execution.


  1. It is difficult to fix accountability for non-performance

  2. Division of authority may hinder discipline in an organization.

  3. Many experts increase overall costs

  4. Delayed decisions when more than one expert is responsible for decision making.

  5. Leads to conflict and lack of coordination. Managers may try to shift blame and disown responsibility.

  6. Conflict of interest between two or more department.

  7. Subordination of functional goals to organization’s overall goal.

Line and Staff Organization

Line and Staff Organizational Design is a modification of Line organization. Under Line and Staff Organizational Design, specialized and supportive activities are attached to the line of command by appointing staff superiors and specialists, who are attached to the line authority. The power of command remains with the line executives, while the staff supervisors guide, advice and counsel the line executives.

Divisional Organizational Design

Such an organizational design is usually found in large organizations, which have more than one product category or product line. Divisional organizational design involves grouping of all functions requires to produce a specific product or product line into one division or department. Each division is headed by a general manager or president, who is responsible for the working of that division and is also accountable for its success or failure. Each division is self-contained with a separate business or profit center.


  1. Product specialization helps in development of varied skills in a division and prepares the divisional head for higher positions.

  2. Divisional heads gain experience in all functions related to a particular product or project.

  3. It promotes flexibility as each division works like an autonomous unit, which leads to efficiency in operations and faster decision making.

  4. Revenues and costs related to different departments can be easily identified and divisional heads can be held accountable for losses or low profits. Hence, it provides a proper basis for performance measurement.


  1. It is costly as all facilities have to be setup for each division.

  2. It leads to conflict among different divisions regarding allocation of funds.

  3. It leads to increased costs and inefficient operations due to duplication of activities.

  4. There is no emphasis on functional specialization, which leads to job dis-satisfaction with respect to functional specialists.

Project Organization

A project organizational design is composed of core functional divisions which are formulated to achieve certain objectives related to a specific project. A project organization is formed for a specific project and may be dismantled after the project objectives have been achieved.


  1. It allows maximum use of specialized resources available with an organization. Specialized Knowledge and skills can be transferred from one project to another.

  2. It enables an organization to cope up with the changing business environment.

  3. It provides flexibility with respect to utilization of resources by allocating specialized resources to the project where they are most needed.


  1. Due to ad-hoc arrangement and limited life, it creates a feeling of insecurity and uncertainty among employees.

  2. There is lack of clarity among employees as project relationships are not based on authority and responsibility.

  3. Employees tend to be less loyal as they do not have a permanent tenure with any project.

Matrix Organization Design

It is one of the latest organizational design which was formulated for very large organizations with complex undertakings, which require more flexibility and specialization. Matrix organizational design is a combination of functional departments and project specialists who focus on specific projects to enable better planning and control.

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