Everything you need to know about types of organizational structure. Organisation structure refers to the way people and jobs in an organisation are arranged so that the work of the organisation can be performed.

In other words, it refers to the particular way in which a firm or public authority is structured in order to perform its economic, social etc., activities.

Organisational structure can also be looked at in terms of the number of management layers involved. Tall organisations have many management levels and flat organisations only a few such levels.  

Some of the types of organizational structures are:-


1. Functional Structure 2. Divisional Structure 3. Matrix Structure 4. Team Structure 5. Network Structure

6. Learning Structures 7. Line Structure 8. Line-and-Staff Structure 9. Functional Structure.

Types of Organisational Structures: Functional Structure, Divisional Structure, Matrix Structure and a Few Others

Types of Organizational Structure – 6 Main Types: Functional Structure, Divisional Structure, Matrix Structure and Team Structure

Job definition is an important stage of organising work but the process cannot stop there. If it did, jobs would be performed efficiently but they would be isolated and lack co-ordination. Consequently, once jobs have been defined it is vital to devise a structure that relates jobs in a logical and appropriate way. There are many ways of structuring jobs.

The main ones are:


1. Functional structures

2. Divisional structures (regional, product, client)

3. Matrix structures

4. Team structures


5. Network structures

6. Learning structures and knowledge management

Type # 1. Functional Structures:

The most usual way to organise jobs is to group them according to their function. A func­tion is an intended purpose. For example, the purpose (function) of the brain is to think and the purpose (function) of the skeleton is to support the body. Similarly, the function of the production department is to make goods or services while the function of the sales depart­ment is to sell those goods.

Most organisations have a number of functions. The major functions are operations (pro­duction), sales, human resources and finance. Here the focus is upon the way an organisation might structure jobs according to functions. For example, the common purpose of selection, training, manpower planning and safety is the management of human beings.


Hence, an interviewer, a management trainer, the man­power planning officer and a safety officer might be grouped into the human resource function. Similarly, the common element of paying suppliers, paying employees, raising money on the stock market and obtaining payment from customers all concern money and the people whose jobs involve these activities might be grouped into the financial function.

A functional structure brings together people with similar expertise. This means that they can advise and support each other. A functional structure normally engenders considerable loyalty in its members. Organisation by function is depicted by a classic organisation chart of a small manufacturing business.

This organisation has a flat structure and is typical of many manufacturing organisations with large spans of control and where a small number of people manage the work of many operatives. Some administrative and clerical organisations also have flat structures. For example, in government departments collecting taxes a few senior officials will supervise the work of many people who process tax returns.

Some organisations have tall structures where each manager has only one or two subor­dinates. Tall structures are found in specialised organisations where the activities of one person are related to the activities of others. It would be typical, for example, of a consultancy designing software.


Functions differ from organisation to organisation. A manufacturing organisation will have functions similar to those shown in the first organisational structure. In a large bank, however, the functions might be called retail operations, major accounts, lending and public relations. In a legal partnership the functions might be called commercial property, intellectual property, financial, international, litigation etc. Functional structures work well when an organisation recurrently processes large batches of a few standard products.

Functional organisational structures have a number of advantages:

(a) Operational efficiency is high. They give tight, centralised control. Responsibilities are clearly defined and understood.

(b) Similar jobs are grouped. People doing similar tasks can support each other and develop considerable expertise. Work groups are cohesive.


(c) Employees have a clear career structure.

(d) Economies of scale are obtained. Resources are used efficiently. Specialised equipment is located where it is needed most and fewer items of equipment need to be bought.

Unfortunately, functional structures also have one major disadvantage. Loyalties develop to the function rather than the organisation. People put the goals of their own groups before the goals of the organisation. Functional groups may develop narrow perspectives that lead to conflict with other functions.

For example, the sales function may blame the manufac­turing function for producing poor products while the manufacturing function may blame the sales function for not selling products energetically. The narrow viewpoints of functions are often called “functional chimneys” that lead to a “blame culture” and poor communi­cation. Decision-making slows because choices are referred to higher levels where responsibilities for the functions converge.

Functional structures also lead to ‘empire building’ by managers. They enhance the prestige of their jobs by expanding the numbers inside their function – irrespective of the contribution extra workers might make.

Type # 2. Divisional Structures:

Large organisations are often structured into self-sufficient divisions.

This has a number of advantages:

i. Clear identification of costs, profits and the contribution a product is making to an organisation’s success. The responsibility for poor performance can be pinpointed. Managers of a division are highly motivated to respond to their customers and their environment.

ii. Justification of dedicated facilities. Decision-making is speeded and changes to cus­tomer needs can be met quickly. An organisation that is divided into divisions is likely to be flexible and adaptable.

iii. Co-ordination within divisions is usually easy because a division is likely to consist of a small number of units.

iv. Divisions can focus on particular areas of business and build up the specific expertise needed in these areas.

v. Structural changes are easier when organisations are structured into divisions: failing divisions can be closed and new, profitable, divisions can be established.

vi. General managers have a training ground. Each division will have managers who are concerned with integrating a whole business unit. When a new manager is needed at corporate level, there are likely to be a number of suitable candidates in the various divisions.

Divisional structures also have disadvantages:

i. Facilities are duplicated. For example, a New Zealand organisation structured into regional divisions may have three separate accounts departments- one in the North Island and one in the South Island. Furthermore, there may be a further accounts department at corporate headquarters. It might be more efficient to have one accounts department for the whole country.

ii. Divisions may become too autonomous, following their own vision and strategy rather than those of the organisation.

iii. Divisions may also be subject to “empire building”. “Divisional chimneys” may develop.

In large organisations the advantages of structuring operations into divisions usually out­weigh the disadvantages. The divisions can be based upon many characteristics – mainly region, product, customer and process. Usually there is a hybrid structure combining an appropriate mix of divisional structures.

However, it is useful to know the pure types:

i. Regional Divisions- Activities that occur in geographical proximity are grouped. They are very common in organisations involved in retailing, distribution and transport. They are also common in service organisations such as hospitals, highway maintenance and schools. Multinational organisations are often organised on a regional basis.

Organisations structured into regions have a key advantage that decisions can be made at a local level where personnel have first-hand local knowledge. Further, they often reduce transport costs. Unfortunately, regional structures may not give managers the wider, general experience needed to operate at a national or global level- they only have experience of their own region.

ii. Product divisions group activities make distinct products or services. They have a major advantage that a business unit can specialise in a technology or market and develop a high level of expertise.

iii. Client divisions group jobs and activities according to their customers. This is common in service organisations such as hospitals and prison services. It is also common in con­sultancies and organisations making sophisticated equipment. For example, a hospital may be structured into pediatrics, accident and emergencies, obstetrics and geriatrics. Organisations supplying a handful of powerful clients will set up a division for each client.

Client divisions are able to serve the special needs of customer groups. In a com­mercial setting, an organisations, may be able to build customer loyalty which gives them a competitive advantage. A major disadvantage of client divisions is that many clients have common needs, yet the divisions duplicate facilities when meeting the needs of each separate group.

Type # 3. Matrix Structures:

Matrix structures aim to avoid functional and divisional chimneys by making sure that sub- units co-operate. At the same time they try to maintain the advantages of specialisation. In many ways, matrix structures can be thought of as a mixture of functional and divisional structures. They have been defined as “a structure in which the tasks of the organisation are grouped spontaneously along two organising dimensions”. A typical matrix structure have functions given along the top of an organisation chart while div­isions, in this case product divisions, are placed down the side.

A distinctive feature of a matrix organisation is that each person appears to have two bosses. They have an operational boss who is in charge of their function. They also have an operational boss who has day-to-day authority relative to working on a specific project. The function boss will have authority over professional matters such as promotions and salary.

The project boss and function boss need to co-ordinate their demands. Some matrix struc­tures are even more complex. They attempt to place employees in a three-dimensional matrix of, say, functions, products and client base. Such complex matrix structures are often impractical.

Many medium and large organisations have adopted a matrix structure.

The main advan­tages are:

i. Co-ordination is increased and gross duplication is avoided – Often a matrix structure enables an organisation to achieve several objectives simultaneously.

ii. Employees have varied work and they gain wide experience – Matrix structures may allow a higher level of worker participation.

iii. A cohesive organisation results from the interaction of employees from different func­tions or divisions.

iv. A more adaptable and flexible organisation results from the richness of the contacts between employees. It can readily adapt to changes in the business environment.

The major disadvantages of a matrix organisation are:

i. Confusion arises when a functional boss and a project boss fail to cooperate or, worse, when they engage in a power struggle. People in a matrix structure are sometimes con­fused about where their main responsibility lies.

ii. Much time is consumed by complexities of co-ordination. Matrix structures may lead to more discussion than action.

iii. Employees feel isolated from the colleagues with whom they have a natural or pro­fessional affinity.

Type # 4. Team Structures:

In traditional structures it takes time for information to travel up and down an organisation in order for a decision to be made. Team structures aim to avoid this problem by pushing responsibility downwards and empowering groups to make autonomous decisions. Sometimes teams are called “self-managing teams”. Sometimes the teams are called “cross- functional teams”.

A team structure is like a matrix structure except the teams are not permanent. A team will consist of a relatively small (about 12) number of managers drawn from relevant functions. Teams are usually multi-disciplinary in order to maximise the avail­able skills and knowledge. Furthermore, teams will have little hierarchical structure.

A team has a specific task such as developing a new product or implementing a new piece of legis­lation. The team will be mutually responsible for achieving the desired results. It will be disbanded when it has completed its task. The members will be reallocated to new teams with a new problem.

Self-managing teams weaken traditional boundaries. Functions still exist and achieve advantages of economy of scale and specialisation. However, functions interact on specific projects so barriers between functions are weakened. Members of a function develop an understanding of problems faced by other functions. They develop workable compromises. This produces the flexibility to respond to changes. It is claimed that teams harness the potential of the skills and knowledge held by team members.

Unfortunately, self-managing teams have disadvantages. Disproportionate time is devoted to meetings. Senior managers, who once knew details of the work of everyone in their function, find it difficult to keep track of the activities of their “subordinates” working in teams. They may find this disorienting. They may not be able to exercise control. This may lead to an additional difficulty. Teams may follow their own idiosyncratic objectives rather than the objectives of the organisation.

Type # 5. Network Structures:

Network structures are a modern innovation. They are sometimes called “boundary less organisations”. Sometimes they are also called “strategic alliances” and “partnering arrangements”.

In a network structure, a small core of employees have responsibility for the general organisation, communication, finance and perhaps one function where it excels, such as design. All other aspects are subcontracted to outside suppliers. Core workers co-ordinate outside suppliers so that the final product can be delivered. For example, an entrepreneur may invent a new self-sealing can that prevents fizzy drinks going flat. Instead of setting up a sizeable organisation to manufacture and market the product, the entrepreneur enters an arrangement with an existing Malaysian manufacturer.

This saves expense. There is no need to acquire expertise in the container production. The entrepreneur could also enter into an alliance with a sales and marketing organisation based in New York – saving the time and trouble of setting up a sales organisation. The entre­preneur would also hire three or four core workers who would manage relationships with the suppliers. Naturally, the training and salary administration of the core workers would be outsourced to a specialist agency based in Delhi.

Network organisations are particularly common in the clothing, computer and pub­lishing industries. Network or boundary less organisations are free to find subcontractors anywhere in the world. The network can be changed rapidly in response to market demand. If a product is not selling, a contract with the producer can be terminated. A new contract can be struck with another producer who makes a more profitable or attractive product. In a sense, a network structure is a modular organisation where the components can be removed or added according to demand.

There are three main kinds of network structures:

1. Internal networks exist within large organisations that need to retain full control in order to achieve high quality or to meet statutory requirements. They often set up sub­groups with responsibility for supplying various products or services to “internal customers”. The subgroups operate like mini-organisations.

Usually they act indepen­dently as a separate profit centre. They negotiate prices and conditions of supply with their internal customers. However, the organisation maintains sufficient control to prevent them defecting to another organisation or refusing to supply their internal cus­tomers. Most of the power is with the internal customers since they are usually free to source their requirements from the open market.

2. Stable networks rely on outsourcing. Suppliers are chosen with care. The objective is
to establish strong, long-standing relationships. Suppliers have a high level of loyalty and commitment to the core organisation, which in turn will act in a slightly paternal­istic way to ensure the health of their key suppliers.

The core organisation may give help with financing and research and development. These relationships may be called “organisational partnerships”. But the power lies with the core organisation. When the chips are down, the core organisation switches to a cheaper supplier. The partner sup­plier, on the other hand, usually becomes too dependent upon the core organisation to resist.

3. Dynamic networks are characterised by outsourcing most operations. They consist of many alliances and partners. Partners change rapidly and there is little loyalty.

The physical headquarters of a network structure may be small- in extreme cases it may simply consist of a room with a computer and communications equipment. This type of network structure is often called a “virtual organisation”. Virtual organisations can locate and relocate very quickly in any country that suits their temporary requirements.

Small entrepreneurial firms may find that a network structure enables them to match the power of large organisations since they are able to “buy in” facilities and services at will. Other organisations adopt a network structure in order to concentrate on key strengths (core competences) and will leave other aspects to outside organisations which are chosen on the basis of core strengths that complement the strengths of the central organisation.

The main advantages of network structures are that they:

(a) Enable organisations to manufacture and market globally. A network structure can often achieve large results from meagre resources.

(b) Give flexibility to redefine an organisation rapidly in the search for markets.

(c) Enable efficiency- A network organisation will have little administration and low over­heads. There may be no need for a traditional hierarchy.

The disadvantages of a network structure include:

(a) Loss of control- Many decisions will be made by subcontractors. Further, actions will be fragmented amongst subcontractors. Long-term suppliers may be unstable because subcontractors are able to switch to another organisation who can offer better terms. Loss of control often means an increase in uncertainty. Long-term projects may become difficult to plan and organise. Loss of control may mean loss of key components overnight.

(b) Employee loyalty may decrease because there is little identification with the central core.

Type # 6. Learning Structures:

Management gurus such as Peter Drucker (1997) suggest that in today’s organisations the knowledge they contain is their major asset. This knowledge includes patents, copyrights, trade secrets and contacts. The majority of such knowledge is inside the heads of employees. Senge’s (1990) book, The Fifth Discipline, emphasised the need to structure an organisation in a way that maximises its ability to increase the capital of knowl­edge it holds by adopting a “learning structure”.

A learning structure uses its people, values and systems continuously to change and improve performance-based experience. This places a high value on learning from the experience of customers, suppliers, partners and contractors. Learning structures seek out learning opportunities whenever and wherever they can.

A learning structure shows five main characteristics:

i. Employees share the same vision of the organisation- They will have participated in the formation of the vision and will therefore be willing to consent to the actions needed to bring it about. If the vision is clear, people are able to identify and solve problems in order to achieve that vision.

ii. Employees understand how the whole organisation operates. Understanding how the organisation works as a system helps individuals work in a succession of project teams while maintaining a sense of perspective.

iii. Employees are willing to discard the old ways – In particular, views on controlling staff change. Managers in learning structures think of control as a co-operative process. Rather than having control over subordinates, managers exercise control with subordi­nates. People are not a cost which needs to be minimised. Their knowledge, experience and creativity are regarded as the organisation’s main asset.

An atmosphere of respect and trust creates an environment where it is safe to experiment. Mistakes are accepted not punished. They are an inevitable part of taking necessary risks needed to learn, grow and improve. People are expected to “push the envelope” on the understanding that sometimes things will go wrong and they will not be blamed.

iv. Employees feel confident of their position within the organisation. They are able to discuss ideas openly and frankly, without taking defensive positions. Features which emphasise status differences (car-parking spaces, separate restaurants, and differences in dress) are eliminated.

v. Information is distributed widely- Everyone can obtain information about budgets, expenses, schedules and other databases. People can see for themselves how their actions and ideas contribute to organisational goals. Communications are fluid. People can email any other person in the organisation.

Learning structures place a high value upon knowledge management. They make a com­petitive advantage out of the knowledge held by the organisation. Some organisations take knowledge management so seriously that they develop a “knowledge strategy” and may appoint a senior person to the post of “Chief Knowledge Officer” (CKO). This person will be in charge of the organisation’s intellectual assets.

The CKO will be responsible for a strategy to ensure that the organisation has a portfolio of knowledge that enables it to meet chal­lenges. The CKO will be expected to motivate everyone in the organisation to extend their knowledge and skills. Furthermore, the CKO must make sure the information is shared widely.

Knowledge management means the management of three inputs- data, information and knowledge. Data is merely a statement of an event or situation such as “19 analyses con­ducted” or “20 units sold today”.

Information is a commodity that is derived from data when they are manipulated in some way (collated, compared, analysed) so that they have meaning to someone. For example, when the sale of 20 units is compared to the data, 15 units, 16 units, 18 units for the previous three days it has the meaning that an increasing trend has continued. Knowledge is what people understand on the basis of information.

It occurs when they evaluate the information against their experience, thinking and learning about similar events. Knowledge allows people to exploit information in order to achieve organisational goals. For example, knowing that a product is in increasing demand might enable a manager to increase its production or raise its price.

Another important distinction lies between explicit knowledge and tacit knowledge. Systematic knowledge that is written or recorded in some form is called “explicit knowl­edge”. On the other hand, poorly organised knowledge that is contained in people’s heads or in ephemeral notes or emails is called “tacit knowledge”. It is difficult to capture tacit knowledge in a database. It is also difficult to formalise and transmit. Tacit knowledge is important in doing things smoothly. It is often lost when people leave an organisation or when an organisation is merged with another.

Chief Knowledge Officers (CKOs) will be responsible for looking after both explicit and tacit knowledge. They will be responsible for data warehousing, data mining and main­taining knowledge portals. Data warehousing is a fairly straightforward concept. It means storing large quantities of information in a way that enables it to be comprehensively and easily retrieved when it is needed for a report or business decision.

Data mining involves the use of sophisticated search tools that looks for patterns between items of data. The pat­terns can be useful- for example, in identifying trends or market segments. A knowledge portal is a point that allows employees access to a data warehouse or a data mine. Normally a knowledge portal is a part of an organisation’s intranet. It is a single point of access where users can gain access to information contained in various parts of an organisation’s data warehouse.

The portal will have a simple, unified system of commands so that users do not need to master a series of complicated systems. For example, Cisco, the Internet infrastruc­ture giant, has a portal for newly hired engineers. Once they have mastered a few basic commands they are able to access information they might need in the first 90 days’ employ­ment at Cisco.

Types of Organizational Structure: Functional Structure, Divisional Structure, Matrix Structure and Network Structure

1. Functional Structure:

Functional Organization structure is a hierarchical type of organizational structure.

In this structure:

i. People are grouped as per their area of specialization and various specific departments;

ii. Supervised by a functional manager with expertise in the same field.

This is done to effectively utilized the skills of people and to achieve the organization’s objective.

In functional organizations, the organization is divided into various specific departments; e.g., human resource, marketing, finance and operations etc. Each department will have its own department head who will be responsible for the performance of his section. It helps a lot to control the quality and uniformity of performance.


i. Promotes specialization of employees based on their skills.

ii. Workers are very skilled and efficient because they are experienced in same type of work.

iii. Minimizes the need for an elaborate control system.

iv. Allows quick decision-making.

v. Expert can manage each department since all jobs are specialized activities and require specialists.

vi. Better supervision, since an individual manager becomes familiar with related tasks and activities.

vii. Better co-ordination due to specialization and efficiency among the various departments.


i. Forces accountability to the top.

ii. Minimizes career development opportunities.

iii. Low employee morale.

iv. Creates line-staff conflicts.

v. Poor delegation of authority.

vi. Inadequate planning for products and markets.

vii. Differences in functional specialization and orientation create problems in communications and co-ordination.

viii. Specialists may develop narrow perspective, losing sight of the company’s strategic vision and mission.

2. Divisional Structure:

The divisional organization structure is more suited to every large enterprise particularly those which deal in multiple products to serve more than one distinctive markets. The organization is then divided into smaller business units which are entrusted with the business related to different products or different market territories.

In other words, independent divisions (product divisions or market division), are created under the overall control of the head office. Each divisional manager is given autonomy to run all functions relating to the product or market segment or regional market. Thus, each division may have a number of supporting functions to undertake.

A divisional structure may consist of the following divisions:

i. Divisional by geographic area – To promote local participation in decision-making, and improved co-ordination.

ii. Divisional by product – To emphasise on specific products and services which differ substantially.

iii. Divisional by customer – To cater to the needs of defined customer groups.

iv. Divisional by process – Similar to a functional structure, but divisions are also responsible for revenue generation.


i. Promotes accountability since division managers can be held responsible for sales and profit levels.

ii. Employee Morale is comparatively higher in a Divisional Structure than in a centralized structure.

iii. Career Development opportunities for Managers, since it permits people to develop total expertise in a certain product/area/process, etc.

iv. Allows better control of local situations.

v. Leads to a competitive climate within the firm, and

vi. Allows new businesses and products to be added easily.


i. Each division requires functional specialists or experts in that product/area/ market.

ii. Duplication of staff services, facilities, and personnel, since certain activities are performed centrally and in each division.

iii. Requires an elaborate, headquarters-driven control system, which may be costly.

iv. Certain regions, products, or customers may receive special treatment and develop inconsistent traits/practices when compared to the Company’s overall policy. 

3. Matrix Structure:

This is another type of structure which aims at combining the advantages of vertical and horizontal flows of authority and communication (hence the term Matrix). In the matrix organization structure, there are functional departments with specialized personnel who are deputed to work full time in different projects; sometimes in more than one projects under the overall guidance and direction of project managers.

These employees are assigned temporarily to one or more projects or project units, which are temporary. They report to the project manager, during the period of their assignment to that project.

Thus, employees have two superiors –

i. Functional Manager (vertical flow) and

ii. Project or Product Manager (horizontal flow).


i. Useful for specialised industries like construction, healthcare, research and defense.

ii. Project objectives are clear.

iii. Many channels of communication and employees can see the visible results of their work.

iv. Shutting down a project is accomplished relatively easily.


i. Higher employee costs, due to more management positions.

ii. Complexity due to horizontal and vertical flows of authority and communication.

iii. Dual lines of authority, violating the “Unity of Command” principle.

iv. Dual reporting channels, leading to chaos and confusion.

v. Sharing of authority, leading to conflicts between Managers.

vi. Conflicts in resource allocation decisions.

4. Network Structure:

The network structure is an example of what could be termed a “non-structure” by its virtual elimination of in-house business functions. Many activities are outsourced. A corporation organized in this manner is often called a virtual organization.

The network structure becomes most useful when the environment of a firm is unstable and is expected to remain so. The network organization is a network of independent firms or business units linked together by computers in an information system that designs, produces, and markets a product or service.

It is often known as a ‘virtual organization’, because it is composed of a series of project groups or collaborations linked by constantly changing non-hierarchical, cobweb-like networks. Instead of having salaried employees, the firm may have contract use agreements with people for a specific project or length of time.

Instead of being located in a single building or area, the firm’s business functions are scattered worldwide. The firm is, in effect, only a shell, with a small headquarters acting as a ‘Broker’, electronically connected to some fully-owned divisions, partly-owned subsidiaries, and other independent companies.


i. Most useful when the environment of a firm is unstable.

ii. Strong need for innovation and quick response.

iii. More flexibility and responsiveness to cope with rapid technological changes.

iv. Allows a company to concentrate on its own competencies through outsourcing.


i. Availability of numerous potential partners (skilled and willing people) can be a source of trouble.

ii. Contracting out functions may keep the firm away from developing own human resources.

iii. If a particular firm overspecializes on only a few functions, it runs the risk of choosing the wrong functions and thus becoming non-competitive.

Hourglass Structure:

Information technology and communications have significantly changed the functioning of organizations. The tasks performed by middle management have been replaced by the information and Communication technological tools. Hourglass organization structure consists of three layers – Top Layer, Middle layer, Bottom layer.

The structure has a short and narrow middle-management level. Information technology links the top and bottom levels in the organization taking away many tasks that are performed by the middle level managers. A narrow middle layer coordinates diverse lower level activities.

Contrary to traditional middle level managers who are often specialist, the managers in the hourglass structure are generalists and perform wide variety of tasks. They would be handling cross-functional issues emanating such as – those from marketing, finance or production.

Benefits of Hourglass structure:

i. It reduces costs.

ii. It helps in enhancing responsiveness by simplifying decision making.

iii. Decision making authority is shifted close to the source of information so that it is faster.

Types of Organisational Structure – 3 Important Types: Line Structure, Line-and-Staff Structure and Functional Structure (With Advantages and Disadvantages)

Organisation structure refers to the way people and jobs in an organisation are arranged so that the work of the organisation can be performed. In other words, it refers to the particular way in which a firm or public authority is structured in order to perform its economic, social etc., activities.

A firm may be structured in two main ways – in a product-based structure activities are grouped together according to product, with each product being supported by its own functional teams of marketing, production, finance, etc.; in a functional structure activities are grouped into departments by function — marketing, production, finance, etc., — which support all the firm’s products.

Organisational structure can also be looked at in terms of the number of management layers involved. Tall organisations have many management levels and flat organisations only a few such levels.

The way in which a firm is organised around products and functions and the number of management layers can have a significant effect on the efficiency of the firm and its ability to respond quickly to changes in its market environment.

Organisational structure is the designation of jobs within an organisation and the relationship between these jobs. Within an organisation, numerous structures exist. Two basic forms of organisational structure that can be identified are line and line-and- staff. A line organisational structure is the oldest and simplest form. In a line organisation top management has complete control, and the chain of command is clear and simple. Examples of line organisations are beauty parlours, grocery stores and other small firms etc.

Type # 1. Line Structure:

The most important aspect of the line structure is that the work of all organisational units is directly involved in producing and marketing the organisation’s goods and services. This is the simplest organisational structure and is characterised by vertical links between the different levels of the organisation. All members of the organisation receive instructions through the scalar chain.

One advantage is a clear authority structure that promotes rapid decision making. A disadvantage is that it may force managers to perform a broad range of duties. It may also cause the organisation to become too much dependent on one or two key employees who are capable of performing many duties. Because of its simplicity, line structure exists most frequently in small organisations.

Type # 2. Line-and-Staff Structure:

The second form of organisational structure is line-and-staff. The line-and-staff organisation combines the clear chain of command present within a line organisation with staff departments which support and advise the line departments. Most medium- and large-sized firms exhibit line-and-staff organisational structure.

In fact, the addition of staff specialists to a line-structured organisation creates a line-and-staff structure. As a line organisation grows, staff assistance often becomes necessary. Staff functions are advisory and supportive in nature; they contribute to the efficiency and maintenance of the organisation. Line functions are directly involved in producing and marketing the organisation’s goods or services.

They generally relate directly to the attainment of major organisational objectives, while staff functions make indirect contribution. Staff people are generally specialists in one field, and their authority is normally limited to making recommendations to line people. Typical staff functions include research and development, personnel management, employee training, and various “assistant to” positions.

Line and Staff Positions:

A line position is directly involved in the day-to-day operations of the organisation, such as – producing or selling a product and/or service. Line positions are occupied by line personnel and line managers for carrying out the primary activities of a business and are considered essential to the basic functioning of the organisation. Line managers, on the other hand, make the majority of the decisions in t-he organisation and give orders to line personnel to achieve company goals. An example of a line manager is a marketing executive. He (or she) directly contributes to the firm’s mission and objectives.

By contrast, staff personnel use their technical expertise to assist the line personnel and aid top management in various business activities indirectly whereas staff managers like legal advisors provide support, advice and knowledge to other individuals in the chain of command. Even though staff managers are not part of the chain of command, they do have authority over their personnel. Therefore staff positions engage in activities that are supportive to line personnel.

Advantages and Disadvantages:

Several advantages and disadvantages are present within a line-and-staff organisation. The main advantage of a line-and-staff organisation is the availability of technical specialists. Staff experts in specific areas are incorporated into the formal chain of command. The main disadvantage of line-and-staff organisation is excessive conflict between line and staff personnel. Expert advice by staff personnel may be seen as order giving and thus increase the firm’s overhead costs in the form of disgruntled line employees.

Line and Staff Authority:

Three different types of authority are present in an organisation — line, staff and functional. Line authority is the right to carry out assignments and exact performance from other individuals. Line authority flows down the chain of command. For example, line authority gives a production supervisor the right to direct an employee to operate a particular machine. Therefore line authority gives an individual a certain degree of power relating to the performance of an organisational task.

A second type of authority within a line-and-staff organisation is staff authority. Staff authority is the right to advise or counsel those with line authority. For example, human resource department employees help other departments by selecting and developing a qualified workforce. Therefore staff authority gives staff personnel the right to offer advice in an effort to improve line operations.

The third type of authority in line-and-staff organisation is functional authority, it gives a staff person power over a particular function such as – safety or quality. For example, members of an accounting department might have authority to request documents they need to prepare financial reports. In short, functional authority is a special type of authority for staff personnel that must be designated only by top management.

Line and Staff Conflict:

The line and staff organisation allows much more specialisation and flexibility than does the simple line organisation; however, it sometimes creates conflict. Due to different positions and types of authority within a line-and-staff organisation conflict between line and staff personnel is almost inevitable. Excessive conflict on the part of line and staff personnel can disrupt an entire organisation.

There are various reasons for line and staff conflict. Some staff specialists resent the fact that they may be the only advisors to line personnel and have no real authority over the line. At the same time, line managers, knowing they have final responsibility for the results to be achieved, are often reluctant to listen to staff advice.

Many staff specialists think they should not be in a position of having to sell their ideas to the line. They believe the line managers should openly listen to their ideas. If the staff specialist is persistent, the line manager often resents even more that the staff “always ‘tries to interfere with my activities and run my department.” The staff specialist who does not persist often becomes discouraged because “no one ever listens”.

There are many reasons for such conflicts. Poor human relations, overlapping authority and responsibility, and misuse of staff personnel by top management are all primary reasons for feelings of resentment between line and staff personnel. This resentment causes each department to take a parochial view of the organisation instead of looking at the organisation as a whole and treat this as a monolithic entity.

Resolving Conflicts:

Fortunately for line-and-staff organisations, there are three ways to minimise excessive conflict:

i. Work team – One way is to integrate line and staff personnel into a work team. The success of the work team depends on how well members of each group can work together in an effort to increase productivity and performance.

ii. Clear distribution of authority and responsibility – Another solution is to ensure that the areas of responsibility and authority of both line and staff personnel are clearly defined. With clearly defined lines of authority and responsibility, each group should understand their role in the organisation.

iii. Accountability – Finally, to minimise excessive conflict it is necessary hold both line and staff personnel accountable for the results of their own activities. In other words, line personnel should not be held totally responsible for poor performance as a result of staff personnel advice.


Line-and-staff organisations combine the direct flow of authority present within a line organisation with staff departments that offer support and advice. For modern businesses, line-and-staff organisations meet the requirements of the work environment quite well. The combination of line and staff positions with different types of authority provide line-and-staff organisations with more flexibility and expertise than the traditional line organisation. With this flexibility and expertise, line-and-staff organisations are capable of expansion and adaptation in today’s ever-changing business environment.

Type # 3. Functional Structure:

A Summary View:

Functional structure refers to an organisation structure where activities are grouped into departments by function, and formal coordination occurs at the apex. Such structures provide a generally effective means of coordination both within departments and across the organisation as a whole, when there is a single product or service.

They also provide clear career paths for functional specialists, though there is always a possibility that loyalty to departments will displace loyalty to the organisation. Functional structures become less appropriate where an organisation diversifies. It can be difficult to adapt functions to possibly varying product or service requirements since the centralisation of authority in this model tends to encourage uniformity.

This type of structure is often referred to as – ‘U-form’ since authority within the organisation can be traced up the chain of command to a unitary or a single source.

A functional structure is a type of organisational design in which activities of a similar nature are grouped together. The top manager in each of the functional areas reports to a common executive, often the president or chief executive officer of the company. Common functional areas that are grouped together include operations, finance, sales, human resources, accounting, marketing and research and development, among others.

Departmentalisation by function is one of the more widely used methods of organising. Small to moderate-sized organisations with a limited number of related products or services are especially likely to utilise functional structures, as are companies with relatively homogeneous customers and stable markets.

Advantages of Functional Structure:

Functional structures offer the following five advantages:

i. Specialisation – Functional structures make it easier for employees to develop expertise in narrow specialties because they are able to focus on one functional area.

ii. Clear career paths – Functional structures provide clear career paths for employees within functional departments.

iii. Efficient resource use – Functional structures promote the efficient use of organisational resources.

iv. Coordination of effort – Functional structures encourage coordination of effort within functional departments.

v. Technical superiority – Functional structures may make it possible for companies to develop technical advantages over their competitors.

Disadvantages of Functional Structure:

Although functional structures have several advantages, they also have disadvantages.

Some of the more serious disadvantages of functional structures are the following:

i. Coordination failure – It is difficult to coordinate effort across functional departments, which often makes it difficult to quickly respond to change.

ii. Narrow training – Employees receive narrow training in functional specialties that might not provide them with the broad expertise needed for upper-management positions.

iii. Narrow orientation – In functional structures, employees tend to focus exclusively on their functional speciality, which leads to a narrow orientation that could place departmental goals above organisational goals.

iv. Bottlenecks and delays – Functional structures may lead to bottlenecks and delays in sequential tasks, as one functional department waits on another to perform essential tasks.