Organizational structure defines the manner in which the roles, power, authority, and responsibilities

are assigned and governed, and depicts how information flows between the different levels of hierarchy
in an organization.

Organizational structure affects organizational action and provides the foundation on which standard
operating procedures and routines rest. It determines which individuals get to participate in which
decision-making processes, and thus to what extent their views shape the organization's actions.
Organizational structure can also be considered as the viewing glass or perspective through which
individuals see their organization and its environment.

Large multinational corporations require an organizational structure that can house the usual business
functions – finance, marketing, R&D, production, etc as well as those functions required for being
successful beyond the domestic market. The most appropriate organizational structure will be
determined by the overall global strategy of the firm, the relative size of international operations as
compared to domestic operations, and the characteristics of the marketplace in which the firm
competes.

An organizational structure is either centralized or decentralized. Traditionally, organizations have been

structured with centralized leadership and a defined chain of command. The military is an organization
famous for its highly centralized structure, with a long and specific hierarchy of superiors and
subordinates. There has been a rise in decentralized organizations, as is the case with many technology
startups. This allows companies to remain fast, agile, and adaptable, with almost every employee
receiving a high level of personal agency.

Some of the common organizational structures are-

2.1 Functional Organization Structure

The functional structure is the most common model found in most organizations. Organizations with
such a structure are divided into smaller groups based on specialized functional areas, such as
operations, finance, marketing, Human Resources, IT, etc. The organization’s top management team
consists of several functional heads (such as the VP Operations, VP Sales/Marketing). Communication
generally occurs within each functional department and is communicated across departments through
the department heads.

This structure provides greater operational efficiency as employees are functionally grouped based on
expertise and shared functions performed. It allows increased specialization as each group of specialists
can operate independently. In spite of these benefits there are some issues that arise with this
structure. When different functional areas turn into silos they focus only on their area of responsibility
and do not support other functional departments. Also, expertise is limited to a single functional area
allowing limited scope for learning and growth.

2.2 Divisional or Multidivisional Structure

The second type is common among large companies with many business units. Called the divisional or
multidivisional structure, a company that uses this method structures its leadership team based on the
products, projects, or subsidiaries they operate.

The advantage of divisional structure is that it uses delegated authority so the performance can be
directly measured with each group. This results in managers performing better and high employee
morale. Another advantage of using divisional structure is that it is more efficient in coordinating work
between different divisions, and there is more flexibility to respond when there is a change in the
market. The disadvantages of the divisional structure is that it can support unhealthy rivalries among
divisions. This type of structure may increase costs by requiring more qualified managers for each
division. Also, there is usually an over-emphasis on divisional more than organizational goals which
results in duplication of resources and efforts like staff services, facilities, and personnel.

2.3 Matrix Organizational Structure

A matrix structure is organized to manage multiple dimensions. It provides for reporting levels both
horizontally as well as vertically and uses cross-functional teams to contribute to functional expertise. As
such employees may belong to a particular functional group but may contribute to a team that supports
another program. This type of structure brings together employees and managers across departments
to work toward accomplishing common organizational objectives. It leads to efficient information
exchange and flow as departments work closely together and communicate with each other frequently
to solve issues.

There are advantages and disadvantages of the matrix structure. Some of the disadvantages include
tendencies towards anarchy, power struggles and 'sinking' to group and division levels.[13] Matrices
increase the complexity of the chain of command, which can present problems because of the
differentiation between functional managers and project managers. This, in turn, can be confusing for
employees to understand who is next in the chain of command. An additional disadvantage of the
matrix structure is higher manager to worker ratio that results in conflicting loyalties of employees.

2.4 Product Organizational Structure

This is another commonly used structure, where organizations are organized by a specific product type.
Each product category is considered a separate unit and falls within the reporting structure of an
executive who oversees everything related to that particular product line. For example, in a retail
business the structure would be grouped according to product lines. It promotes depth of understanding
within a particular product area and also promotes innovation. It enables clear focus with accountability
for program results.

As with every model, this model also has a few downsides like requirement of strong skills specializing in
the particular product. It could lead to functional duplication and potential loss of control; each product
group becomes a heterogeneous unit in itself.