Organizational Structure - Meaning, Importance & Types

Published by MBA Skool Team, Last Updated: January 09, 2021

What is Organizational Structure?

Organizational structure is the framework on how employees work based on their duties & positions. Organizational structure, which is predominantly a hierarchy of the employees and the functions, is essential in order to streamline operations and processes within an organization. This is a critical part of a company as it defines the flow of work, accountability & authority to take decisions.

Importance of Organizational Structure

There are many functions in a company, who have to work together to achieve the goal of the business. Every function needs to have different people with varied skill sets to grow the business. To ensure that there is flow of information & work, employees have defined roles & responsibilities, companies have a framework. This is known as organizational structure. By doing this, the hierarchy, roles, positions, duties, decision making abilities of all employees are well defined.

An organizational structure usually starts with the CEO at the apex of the company. Below that there are vertical or functional leads for different departments like marketing, finance, HR, operations, IT, admin etc. All these report to the CEO. Below each lead, there are other employees who have expertise in that particular field. Thus, an organizational structure is a pyramid like framework, connecting all employees on the basis of their job profile. Organizational structure departmentalization can be created based on functions, geography, product, customer & process.

Organizational Structure

The above image shows a typical organizational structure.

Features of Organizational Structure

Some of the main elements of having an organizational structure are:

1. Clearly defines roles, responsibilities, position & decision-making power of an employee.

2. Defines the flow of communication & work.

3. Divides work on the basis of functions & skills sets.

4. Establishes a line of authority & flow of delegation.

5. Defines a clear path of interaction between different departments.

Organizational structure is also critical to delegate work & monitor teams as each job profiles work is defined.

Types of Organizational Structure

The popular organisational structures include:

Functional Structure: In this case, the organisation is divided into segments based on the functions performed by the employees. This helps to increase efficiency in each function. It is generally used in large organizations.

Functional Structure

Divisional Structure: In this case, the organisation is divided into divisions which could be based on the product, Markets or Geographic area. Each division has its own set of functions like finance, marketing etc., like small micro organizations within one large organisation.

Divisional Structure

Matrix: The matrix structure is typically a hybrid version of both the functional and divisional structures.

Matrix Structure

Pre-Bureaucratic: Found in startups, No standards with a centralised structure and usually one decision maker.

Bureaucratic: Standardized structures and suitable for large organizations.

Post-Bureaucratic: Follow strict hierarchies but open to modern ideas and methodologies.

Hence, this concludes the definition of Organizational Structure along with its overview.

This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.

Browse the definition and meaning of more similar terms. The Management Dictionary covers over 2000 business concepts from 5 categories.

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