Organizational structure is the formal decision-making framework by which job tasks are divided, grouped, and coordinated.Formalization is an important aspect of structure. It is the extent to which the units of the organization are explicitly defined and its policies, procedures, and goals are clearly stated. It is the official organizational structure conceived and built by top management. The formal organization can be seen and represented in chart form. An organization chart displays the organizational structure and shows job titles, lines of authority, and relationships between departments.


The framework, typically hierarchical, within which an organization arranges its lines of authority and communications, and allocates rights and duties. Organizational structure determines the manner and extent to which roles, power, and responsibilities are delegated, controlled, and coordinated, and how information flows between levels of management.


An structure depends entirely on the organization’s objectives and the strategy chosen to achieve them. In a centralized structure, the decision making power is concentrated in the top layer of the management and tight control is exercised over departments and divisions. In a decentralized structure, the decision making power is distributed and the departments and divisions have varying degrees of autonomy. An organizational chart illustrates the organizational structure.


The significance of an organizational structure is establishing a clear form of operations so employees understand their responsibility and tasks in alignment with accomplishing company goals.


Certain organizational structures include matrix, functional and divisional. Each structure offers a unique reporting sequence to manage a company’s operations by influence employees to perform at their best.


Many business owners consider organizational structure unimportant for running and managing a company. Some must grasp the reality of structure in order to manage operations effectively.


Business owners must consider the purpose of the business and determine what matters most, which positions are vital for success and which positions are mediocre for company progress. Once evaluated, the company structure should be reconfigured for better results.

Keys to Erecting an Effective Organizational Structure

All sorts of different organizational structures have been proven effective in contributing to business success. Some firms choose highly centralized, rigidly maintained structures, while others—perhaps even in the same industry sector—develop decentralized, loose arrangements. Both of these organizational types can survive and even thrive. “There is no one best way to design an organization,” stated Phyllis and Leonard Schlesinger in The Portable MBA in Management. “Organizational research has shown that the more we know about particular types of organizations, the less we can generalize about the optimal design for an effective organization. Generally, organizational theorists believe that no one structure, set of systems, or method of staffing is appropriate for every organization. Organizations operate in different environments with different products, strategies, constraints, and opportunities.”

But despite the wide variety of organizational structures that can be found in the business world, the successful ones tend to share certain characteristics. Indeed, business experts cite a number of characteristics that separate effective organizational structures from ineffective designs. Recognition of these factors is especially important for entrepreneurs and established small business owners, since these individuals play such a pivotal role in determining the final organizational structure of their enterprises.

As small business owners weigh their various options in this realm, they should make sure that the following factors are taken into consideration:

Relative strengths and weaknesses of various organizational forms.

Legal advantages and disadvantages of organizational structure options.

Advantages and drawbacks of departmentalization options.

Likely growth patterns of the company.

Reporting relationships that are currently in place.

Reporting and authority relationships that you hope will be implemented in the future.

Optimum ratios of supervisors/managers to subordinates.

Suitable level of autonomy/empowerment to be granted to employees at various levels of the organization (while still recognizing individual capacities for independent work).

Structures that will produce greatest worker satisfaction.

Structures that will produce optimum operational efficiency.

Once all these factors have been objectively examined and blended into an effective organizational structure, the small business owner will then be in a position to pursue his/her business goals with a far greater likelihood of success.

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