All organizations must have some sort of structure to be operational. “Organizational structure determines how the roles, power, and responsibilities are assigned, controlled, and coordinated, and how information flows between the different levels of management. A structure depends on the organization’s objectives and strategy”. The following discuss several different types of organizational structures and where the decision-making power lies in each.
· Vertical structure: “A vertical organization structure is one that relies on managers to command and control their employees’ work. A business owner is typically at the top of a vertical chain of command”. The person at the top has all the power.
· Horizontal structure: In a horizontal structure, there is not a well-defined chain of command. Employees work in teams and each team has a say in decision making. Those who work in teams also have a team leader who reports to someone else. There is not one single leader.
· Centralized structure: An organization that has only one person in authority is said to be centralized. With a centralized structure, the top layer of management makes the most decisions and has the decision-making power over the lower layers of the organization.
· Decentralized structure: In a decentralized organization, the authority lies with middle to lower management to make the majority of decisions. The decision-making power is shared among the departments or divisions of the organization. An organizational chart shows who has the power and who is involved in decisions made.
· Matrix organization : A company structure in which reporting relationships are set up as a grid, or matrix, rather than in the traditional hierarchy. In other words, employees have dual reporting relationships—generally to two managers
· Departmentalization: “Departmentalization involves dividing an organization into different departments, which perform tasks according to the departments’ specializations in the organization”.
· Functional departmentalization: The organization has different departments that each perform a necessary function.
· Geographical departmentalization: The organization is divided into geographical departments. Each geographical area handles its own business.
· Product departmentalization: Each product being produced has a different department.
· Process departmentalization: Each process within the organization has its own department.
· Customer departmentalization: Departments are organized based on customer needs or problems.
· Chain of management departmentalization: Departments are organized based on the need for managerial divisions.
· Market departmentalization: Departments are determined by the needs of each market they are serving.
Authority and responsibilities in these organizational structures may be assigned using the following methods.
· Line authority: Those in line authority positions are able to make decisions and give orders to those who are subordinate.
· Staff authority: Staff authority includes employees who advise those who are in the position of line authority. Staff authority helps line authority to improve in their position.
· Span of control: Span of control is the number of employees for whom a manager is responsible. Span of control is the number of direct reports a leader can manage efficiently. If the number of direct reports is small, leaders or managers may feel they are not being used effectively, but if the number of direct reports is too large, leaders or managers may feel they cannot effectively manage such a large group.