As organizations grow, they find a need to formalize relationships among employees in order to maximize efficiency. Organizational structure is the official hierarchy of relationships within an organization. These structures can be generally divided into three categories. Each category has advantages and disadvantages. Also, each successive category builds on the features of the previous category (George & Jones, 2008).
The functional organizational structure is characterized by the formation of groups that share similar functions. Grouping employees together based on their specialization has the advantage of putting like-minded people together. Knowledge transfer happens naturally and the group suffers from relatively minor communication problems. Unfortunately, a functional structure becomes less effective as an organization grows. A wider range of products or regional diversity requires further specialization from every functional group (George & Jones, 2008).
When organizations outgrow the functional structure, they create a divisional structure. The divisional structure divides the company into groups based on product, market, or region. Each division then employs a functional structure to carry out normal operations. This has the advantage of allowing the functional groups within a division to focus on the product, market, or region in which they have specialized. Unfortunately, creating this sort of divisional redundancy increases the organization’s operating costs. Additionally, the creation of divisions requires the creation of a tier of management to coordinate the activities of the divisions. This additional management increases costs as well (George & Jones, 2008).
The final organizational structure is the matrix structure. It provides intense flexibility by organizing employees in two ways. First, employees are grouped by function. Then, employees are organized into product teams made up of employees from several functions. Both the functional and product groups have a manager. This has the effect of giving two managers to each employee. This structure allows employees to work with all members of their function and increases productivity as employees learn from each other. Additionally, the product team group breaks down traditional cross-function communication barriers and allows the team to work efficiently with little interference. Unfortunately, the existence of two bosses can be problematic for employees. Employees may find themselves in situations where they must choose to ignore the conflicting demands of one boss (George & Jones, 2008).
George, J. M., & Jones G. R. (2008). Understanding and managing organizational behavior (5th ed.). Upper Saddle River, NJ: Pearson.