Organizational structure pertains to the way in which companies arrange their departments. Smaller companies tend to have flatter organizational structures with few management levels. Larger companies use tall organizational structures with many echelons of management and employees. Companies use several types of organizational structure for specific roles. For example, companies using a geographic organizational structure decentralize various functions like marketing because of varying regional needs.
One role of organizational structure is efficiency. Most companies need to make the most of various resources. Duplicating raw materials or job duties is wasteful and inefficient. Consequently, a company will structure its organizational according to products and services it offers. A small software manufacturer may use a customer-oriented organizational structure because of its wide variety of customers. For example, the software company may sell to consumers, corporations, financial institutions, hospitals and health clubs. In this case, organizing departments by customers is efficient because of diversity. Product management duties may differ widely by customer type. Marketing to consumers is much different than targeting corporations.
Another role of organizational structure is harnessing experience. Companies may arrange their companies by specific functions, such as marketing, accounting, finance and engineering. The purpose of grouping departments by function is to use the experience of groups to accomplish tasks and projects. A certain synergism exists when skilled employees of similar talents work together as a whole. For example, marketing and advertising managers can can better evaluate the potential success of a new product introduction as a group.
Organizational structure in a company also enhances decision making, according to Referenceforbusiness.com. Companies will often structure their organizations to make the best decisions possible. For example, a company may decentralize its marketing to make quicker decisions locally. Consequently, the company may put marketing managers in one of four different regions. It is much easier for regional marketing managers to make local decisions about consumer needs than a marketing manager in a distant corporate office.
Companies also also use various organizational structures for communication purposes. Larger companies have many levels of management. Therefore, the most effective way to communicate is usually from the top of the organization down. Executives create certain operational procedures which they communicate to directors and managers. Managers, in turn, explain these operational procedures to subordinates or hourly employees.
Span of Control
Organizational structure is used for span of control. For example, a vice president of marketing may be in charge of four directors: One for marketing research, brand management, advertising and public relations. The directors may have three separate groups of managers reporting to them. Span of control pertains to the number of employees an executive or manager oversees. This reporting structure is how companies establish accountability.
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