The formal organizational structure is a deliberately planned structure of roles, authority relationships and communication channels. Its purpose is usually set out in writing, with formal rules and regulations that leave little discretion for interpretation. The organization can be represented by an organizational chart.
‘Organizational structure – You cannot see it, but it is probably the most important thing in a business.’
Within any business there are two types of organization – the formal organizational structure and the informal organizational structure.
Human Resources are all the people that work for a particular business organization. They include the CEO, Board of Directors, Middle Management, Supervisors and Team Leaders and workers.
Employees are essential to any business as they are the firm’s most valuable asset. Therefore, by organizing them in the internal organizational structure will help the business to operate effectively and efficiently.
Organizational structure as a part of organizational architecture
Organizational architecture of the firm is totality of a firm’s organization: formal structure, control systems, incentives, processes, organizational culture and people.
In fact, organizational structure is a part of the organizational architecture. It focuses on division, coordination and control of tasks within the business organizational. It also directs the flow of information withing the firm.
Whilst managers distribute responsibility and authority to job holders, the effective organizational structure must fit the overall corporate strategy and competitive environment.
Different businesses organize their human resources in various ways.
How businesses organize their human resources?
Formal organization of the business is the way how human resources are organized. Organizational structure is created beforehand in order to recruit the people needed to start, organize and run the business.
In fact, there is a need for some sort of formal and organized structure in every organization which is made up of at least one person. This is because everyone in the business needs to know their own roles and responsibilities as well as the roles the roles and responsibilities of others in the business organization. Mainly, who is to do what particular job as well as who is responsible to whom and for which decisions.
Typically, the company is be owned by shareholders who choose directors to look after their interests – maximize shareholder value which means increasing share price and increase dividends. The directors then appoint managers who will run that business on a day-to-day basis.
Organizational structure will later develop as a result of the higher number of employees when the business expanded further. With more workers divided into different departments or divisions, the need for structure will be even greater as it will allow the division of tasks and responsibilities to be made clear to everybody.
What is organizational structure?
So, what is meant by organizational structure? Organizational structure is the formal framework of a business organization that shows the structure of the entire firm.
Mainly, it presents:
- The way management is organized and linked together.
- The extent to which roles, power and responsibilities are organized.
- How major rights and duties are allocated.
- The manner how tasks are delegated, controlled and coordinated.
- The way lines of authority are arranged.
- How communication is passing through (information flows) different levels of hierarchy.
The organizational structure is going to greatly impact the workers and manager in their daily lives; therefore, it should be clear and well-understood. Before establishing any formal organizational structure, business needs to be thorough in designing and analyzing an organization’s real situation.
All business organizations need formal organizational structure
Managers structure businesses by their action or inaction.
A company’s own internal structure which shows how human resources are organized takes into account the relationship between individual employees. An organizational structure creates the formal structure that enable the organization to meet its stated objectives. This will help a business to function more efficiently due to having clear:
- Accountability. Who is responsible for each particular job?
- Responsibility. Who is in charge of managing whom?
A formal organizational structure is an effective business technique because it solves many problems related to the overall structure of the firm, naming supervisors, determining who has the authority over whom, linking people in the business to one another, determining channels of communication, etc.
Example 1: In the UK, a typical structure for school has the principal at the top of the organizational structure who is responsible for all the staff and the overall management of the whole school. Managers who are heads of departments are responsible for their own teams including teachers and teaching assistants. Other managers also include a curriculum manager who is in charge of the school curriculum and a personal and social education manager who is responsible for working with the form tutors.
New jobs are created as an organization grows and evolves. Why modern business organizations are evolving quickly?
- Employees are better qualified: skilled, knowledgeable and experienced.
- Multinational organizations can take local factors into account.
- Communication is quicker and faster.
- Organizations requires leaders and team efforts at all levels.
What does organizational structure look like?
A traditional organizational structure in a typical business organization is based on departmental lines.
It means that the firm is divided into many different departments according to their functions – the type of work carried out. Each department is going to specialize in different functional areas of business including marketing, finance Human Resources (HR) and operations (production).
The internal organization of a common business consist different levels of directors, managers and workers. They are structured for tasks and roles to be fulfilled in a manageable and coherent way withing their separate departments.
What does organizational structure show?
A typical organization structure shows the following interconnections:
- Who is in charge?
- Who has overall authority and responsibility for decision-making?
- How information is communicated?
- Who carries out decisions?
- The formal relationships between different people and departments – individual workers can identify their position in the business and who is their immediate line manager.
- The way in which accountability and authority may be passed down the organization – this is called the chain of command.
- The number of subordinates reporting to each more senior manager – this is called the span of control.
- Formal channels of communication both vertical and horizontal – this will aid the investigation of communication problems if messages are not being received in time by the correct people.
- The identity of the supervisor or manager to whom each worker is answerable and should report to is made clear.
Points to consider about organizational structure
- Tall vs. Flat. ‘Tall’ organizations have layers of managers structured in a hierarchy. ‘Flatter’ companies have fewer layers which they claim gives them more flexibility.
- Chain of command. A tall company has a long chain of command, but managers have a narrow span of control. Hierarchies have their advantages, but are they too rigid?
- Teamworking. In multinational pharmaceutical company Eli Lilly, staff work in numbers of different teams in a matrix structure.
- Human costs. Firms flatten hierarchies by cutting staff, but what about the human cost?
In conclusions, each business organization on the market has a formal organizational structure. When developing an organizational structure and distributing authority, any decision must reflect the try mission, objectives, goals and tactics of the entire firm that resulted from the prior planning.
