Types of Organisational Structures: their Advantages and Disadvantages!

All managers must bear that there are two organisations they must deal with-one formal and the
other informal. The formal organisation in usually delineated by an organisational chart and job
descriptions. The official reporting relationships are clearly known to every manager. Alongside
the formal organisation exists are informal organisation which is a set of evolving relationships
and patterns of human interaction within an organisation that are not officially prescribed.

Formal organisational structures are categorised as:

(i) Line organisational structure.
(ii) Staff or functional authority organisational structure.
(iii) Line and staff organisational structure.
(iv) Committee organisational structure.
(v) Divisional organisational structure.
(vi) Project organisational structure.
(vii) Matrix organisational structure and
(viii) Hybrid organisational structure.

These organisational structures are briefly described:

1. Line Organisational Structure:
A line organisation has only direct, vertical relationships between different levels in the firm. There
are only line departments-departments directly involved in accomplishing the primary goal of the
organisation. For example, in a typical firm, line departments include production and marketing.
In a line organisation authority follows the chain of command.

Exhibit 10.3 illustrates a single line organizational structure.

Features:
Has only direct vertical relationships between different levels in the firm.
Advantages:
1. Tends to simplify and clarify authority, responsibility and accountability relationships
2. Promotes fast decision making
3. Simple to understand.

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Disadvantages:
1. Neglects specialists in planning
2. Overloads key persons.

Some of the advantages of a pure line organisation are:

(i) A line structure tends to simplify and clarify responsibility, authority and accountability
relationships. The levels of responsibility and authority are likely to be precise and understandable.
(ii) A line structure promotes fast decision making and flexibility.
(iii) Because line organisations are usually small, managements and employees have greater
closeness.

However, there are some disadvantages also. They are:

(i) As the firm grows larger, line organisation becomes more ineffective.
(ii) Improved speed and flexibility may not offset the lack of specialized knowledge.
(iii) Managers may have to become experts in too many fields.
(iv) There is a tendency to become overly dependent on the few key people who an perform
numerous jobs.

2. Staff or Functional Authority Organisational Structure

The jobs or positions in an organisation can be categorized as:
(i) Line position:
A position in the direct chain of command that is responsible for the achievement of an
organisation’s goals and

(ii) Staff position:

A position intended to provide expertise, advice and support for the line positions.
The line officers or managers have the direct authority (known as line authority) to be exercised
by them to achieve the organisational goals. The staff officers or managers have staff authority
(i.e., authority to advice the line) over the line. This is also known as functional authority.
An organisation where staff departments have authority over line personnel in narrow areas of
specialization is known as functional authority organisation.

Exhibit 10.4 illustrates a staff or functional authority organisational structure.

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In the line organisation, the line managers cannot be experts in all the functions they are required
to perform. But in the functional authority organisation, staff personnel who are specialists in some
fields are given functional authority (The right of staff specialists to issue orders in their own
names in designated areas).

The principle of unity of command is violated when functional authority exists i.e., a worker or a
group of workers may have to receive instructions or orders from the line supervisor as well as the
staff specialist which may result in confusion and the conflicting orders from multiple sources may
lead to increased ineffectiveness. Some staff specialists may exert direct authority over the line
personnel, rather than exert advice authority (for example, quality control inspector may direct the
worker as well as advise in matters related to quality).
While this type of organisational structure overcomes the disadvantages of a pure line
organisaional structure, it has some major disadvantages:
They are: (i) the potential conflicts resulting from violation of principle of unity of command and
(ii) the tendency to keep authority centralized at higher levels in the organisation.

3. Line and Staff Organisational Structure:

Most large organisations belong to this type of organisational structure. These organisations have
direct, vertical relationships between different levels and also specialists responsible for advising
and assisting line managers. Such organisations have both line and staff departments. Staff
departments provide line people with advice and assistance in specialized areas (for example,
quality control advising production department).

Exhibit 10.5 illustrates the line and staff organisational chart.

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The line functions are production and marketing whereas the staff functions include personnel,
quality control, research and development, finance, accounting etc. The staff authority of
functional authority organisational structure is replaced by staff responsibility so that the principle
of unity of command is not violated.

Three types of specialized staffs can be identified:

(i) Advising,
(ii) Service and
(iii) Control.

Some staffs perform only one of these functions but some may perform two or all the three
functions. The primary advantage is the use of expertise of staff specialists by the line personnel.
The span of control of line managers can be increased because they are relieved of many functions
which the staff people perform to assist the line.

Some advantages are:

(i) Even through a line and staff structure allows higher flexibility and specialization it may create
conflict between line and staff personnel.
(ii) Line managers may not like staff personnel telling them what to do and how to do it even
though they recognize the specialists’ knowledge and expertise.
(iii) Some staff people have difficulty adjusting to the role, especially when line managers are
reluctant to accept advice.
(iv) Staff people may resent their lack of authority and this may cause line and staff conflict.

Features:
1. Line and staff have direct vertical relationship between different levels.
2. Staff specialists are responsible for advising and assisting line managers/officers in specialized
areas.
3. These types of specialized staff are (a) Advisory, (b) Service, (c) Control e.g.,
(a) Advisory:
Management information system, Operation Research and Quantitative Techniques,
Industrial Engineering, Planning etc
(b) Service:
Maintenance, Purchase, Stores, Finance, Marketing.
(c) Control:
Quality control, Cost control, Auditing etc. Advantages’
(i) Use of expertise of staff specialists.
(ii) Span of control can be increased
(iii) Relieves line authorities of routine and specialized decisions.
(iv) No need for all round executives.
Disadvantages:
(i) Conflict between line and staff may still arise.
(ii) Staff officers may resent their lack of authority.
(iii) Co-ordination between line and staff may become difficult.
Committee Organisational Structure Features:
(a) Formed for managing certain problems/situations

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(b) Are temporary decisions.
Advantages:
1. Committee decisions are better than individual decisions
2. Better interaction between committee members leads to better co-ordination of activities
3. Committee members can be motivated to participate in group decision making.
4. Group discussion may lead to creative thinking.
Disadvantages:
1. Committees may delay decisions, consume more time and hence more expensive.
2. Group action may lead to compromise and indecision.
3. ‘Buck passing’ may result.

4. Divisional Organisational Structure:

In this type of structure, the organisation can have different basis on which departments are formed.
They are:
(i) Function,
(ii) Product,
(iii) Geographic territory,
(iv) Project and
(iv) Combination approach.
Exhibit 10.6 illustrates organisational structures formed based on the above basis of
departmentation.

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5. Project Organisational Structure:
The line, line and staff and functional authority organisational structures facilitate establishment
and distribution of authority for vertical coordination and control rather than horizontal
relationships. In some projects (complex activity consisting of a number of interdependent and
independent activities) work process may flow horizontally, diagonally, upwards and downwards.
The direction of work flow depends on the distribution of talents and abilities in the organisation
and the need to apply them to the problem that exists. The cope up with such situations, project
organisations and matrix organisations have emerged.

A project organisation is a temporary organisation designed to achieve specific results by using

teams of specialists from different functional areas in the organisation. The project team focuses
all its energies, resources and results on the assigned project. Once the project has been completed,
the team members from various cross functional departments may go back to their previous
positions or may be assigned to a new project. Some of the examples of projects are: research and
development projects, product development, construction of a new plant, housing complex,
shopping complex, bridge etc.
Exhibit 10.7 illustrates a project organisational structure.

Feature:
Temporary organisation designed to achieve specific results by using teams of specialists from
different functional areas in the organisation.

Importance of Project Organisational Structure:

Project organisational structure is most valuable when:
(i) Work is defined by a specific goal and target date for completion.
(ii) Work is unique and unfamiliar to the organisation.
(iii) Work is complex having independent activities and specialized skills are necessary for
accomplishment.

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(iv) Work is critical in terms of possible gains or losses.
(v) Work is not repetitive in nature.

Characteristics of project organisation:

1. Personnel are assigned to a project from the existing permanent organisation and are under the
direction and control of the project manager.
2. The project manager specifies what effort is needed and when work will be performed whereas
the concerned department manager executes the work using his resources.
3. The project manager gets the needed support from production, quality control, engineering etc.
for completion of the project.
4. The authority over the project team members is shared by project manager and the respective
functional managers in the permanent organisation.
5. The services of the specialists (project team members) are temporarily loaned to the project
manager till the completion of the project.
6. There may be conflict between the project manager and the departmental manager on the issue
of exercising authority over team members.
7. Since authority relationships are overlapping with possibilities of conflicts, informal
relationships between project manager and departmental managers (functional managers) become
more important than formal prescription of authority.
8. Full and free communication is essential among those working on the project.

6. Matrix Organisational Structure:

It is a permanent organisation designed to achieve specific results by using teams of specialists
from different functional areas in the organisation. The matrix organisation is illustrated in Exhibit
10.8.
Feature:
Superimposes a horizontal set of divisions and reporting relationships onto a hierarchical
functional structure
Advantages:
1. Decentralised decision making.
2. Strong product/project co-ordination.
3. Improved environmental monitoring.
4. Fast response to change.
5. Flexible use of resources.
6. Efficient use of support systems.

Disadvantages:
1. High administration cost.
2. Potential confusion over authority and responsibility.
3. High prospects of conflict.
4. Overemphasis on group decision making.
5. Excessive focus on internal relations

This type of organisation is often used when the firm has to be highly responsive to a rapidly
changing external environment.

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.
In matrix structures, there are functional managers and product (or project or business group)
managers. Functional manager are in charge of specialized resources such as production, quality
control, inventories, scheduling and marketing. Product or business group managers are incharge
of one or more products and are authorized to prepare product strategies or business group
strategies and call on the various functional managers for the necessary resources.

The problem with this structure is the negative effects of dual authority similar to that of project
organisation. The functional managers may lose some of their authority because product managers
are given the budgets to purchase internal resources. In a matrix organisation, the product or
business group managers and functional managers have somewhat equal power. There is
possibility of conflict and frustration but the opportunity for prompt and efficient accomplishment
is quite high.

7. Hybrid Organisational Structure:

Advantages:
1. Alignment of corporate and divisional goals.
2. Functional expertise and efficiency.
3. Adaptability and flexibility in divisions.
Disadvantages:
1. Conflicts between corporate departments and units.
2. Excessive administration overhead.
3. Slow response to exceptional situations.
Uses:
Used in organisations that face considerable environmental uncertainty that can be met through a
divisional structure and that also required functional expertise or efficiency This type of structure
is used by multinational companies operating in the global environment, for example, International
Business Machines USA. This kind of structure depends on factors such

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Exhibit 10.9 (a) illustrates the hybrid organisational structure.

Exhibit 10.9 (b) illustrates a combination structure

as degree of international orientation and commitment. Multinational corporations may have their
corporate offices in the country of origin and their international divisions established in various
countries reporting to the CEO or president at the headquarters. The international divisions or
foreign subsidiaries may be grouped into regions such as North America, Asia, Europe etc. and
again each region may be subdivided into countries within each region.

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While the focus is on international geographic structures, companies may also choose functional
or process or product departmentation in addition to geographic pattern while at the head quarter’s
the departmentation may be based on function.

The Informal Organisation:

An informal organisation is the set of evolving relationships and patterns of human interaction
within an organisation which are not officially presented. Alongside the formal organisation, an
informal organisation structure exists which consists of informal relationships created not by
officially designated managers but by organisational members at every level. Since managers
cannot avoid these informal relationships, they must be trained to cope with it
The informal organisation has the following characteristics
(i) Its members are joined together to satisfy their personal needs (needs for affiliation, friendship
etc.)
(ii) It is continuously changing:
The informal organisation is dynamic.
(iii) It involves members from various organisational levels.
(iv) It is affected by relationship outside the firm.
(v) It has a pecking order: certain people are assigned greater importance than others by the
informal group.
Even though an informal organisational structure does not have its own formal organisational
chart, it has its own chain of command:

Benefits of Informal Organisation:

(i) Assists in accomplishing the work faster.
(ii) Helps to remove weakness in the formal structure.
(iii) Lengthens the effective span of control.
(iv) Compensation for violations of formal organisational principles.
(v) Provides an additional channel of communication.
(vi) Provides emotional support for employees.
(vii) Encourages better management.

Disadvantages of informal organisation:

(i) May work against the purpose of formal organisation.
(ii) Reduces the degree of predictability and control.
(iii) Reduces the number of practical alternatives.
(iv) Increases the time required to complete activities.

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