Smart Business Study

Types of Organisation Structures

Types of Organisation Structures

The term ‘ organization format or organization structure refers to the formal pattern or network of vertical and horizontal authority relationships among different positions in an enterprise and among the personnel occupying these positions. It is the skeleton framework through which management coordinates the efforts of employees to attain the desired objectives . A sound structure is essential for the efficient and effective functioning of the enterprise because organisation format lays down the pattern communication , flow of authority and means of coordination . There is no ideal structure of organisational relationships which can suit all enterprises . Every enterprise has to evolve its own organisation structure on the basis of its size , nature of activities , competence of personnel and management philosophy .

The traditional functional and product structures have been found inadequate in large multi – product firms performing a variety of tasks . As organisations grow and diversify , managers working within such structures find it increasingly difficult to keep abreast of new developments as well as to cope with routine matters operations . New Forms of organisation , e.g. , matrix , project , network , etc. have been developed to meet the new needs of business to speed up decision – making and paper work . These new forms provide for a horizontal grouping of a number of functions which may otherwise be labelled as line or staff . Two such formats are project organisation and matrix organisation .

Project Organisation

The project structure consists of a number of horizontal organisational units to complete projects of a long duration . Each project is vitally important to the organisation . Therefore , a team of specialists from different areas is created for each project . The size of the project team varies from one project to another . The activities of the project team are coordinated by the project manager who has the authority to obtain advice and assistance of experts both inside and outside the organisation .

The core of the concept of project organisation is to gather a team of specialists to work on and complete a particular project . The project staff is separate from and independent of the functional departments . Figure presents a simple project structure wherein project managers form their own teams in addition to the normal functional departments.

Project Organisation

Project organisation is employed aero space , aircraft manufacture construction and professional areas like management consulting . In such organisations , projects are subject to high standards of performance and there is a strong emphasis on horizontal relations among specialists . For example , Lockhead Corporation of U.S.A. makes extensive use of project structure for its aircraft manufacturing programmes . In industrial concerns , project teams may be structured to facilitate the designing and development of new products. Project management ( moulding the organisation around specific projects ) has been developed to deal with situations where production and marketing strategies ao not fit into a purely functional organisation.

Generally , project organisation is appropriate when the enterprise is undertaking tasks that have defined goals , that are frequent and unfamiliar to the present structure , that are complex due to interdependence of tasks and that are crucial to the success of the firm . According to Terry “It is a preferred means whenever a well defined project must be dealt with or the task is bigger than anything the organisation is accustomed to.”

A project team is a temporary set – up . Once the project is complete , the team is disbanded and the functioning specialists are assigned some other project .

Merits. Project organisation offers the following benefits :

1 . Project organisation provides concentrated attention that a complex project demands . It permits the timely completion of a project without disturbing the normal routine of rest of the organisation . It can be tailored to a particular mission or project to consolidate diverse actions towards the completion of the project while retaining the advantages of functional specialists . It allows maximum use of specialised knowledge.

2 .Project organisation provides a logical approach to any challenge in the form of a large project with definite beginning, end and clearly defined result. It cuts manager’s job to a reasonable level , spreads decision – making and facilitates communications through lateral relationships.

3 . One reason for the success of project organisation is that the project often requires highly talented professionals who find it difficult to work creatively in any structured set – up . The idea of being part of a team of skilled professionals working on a tangible project acts as a powerful motivator . Project organisation encourages initiative and creativity on the part of project staff by giving them a free hand to accomplish work .

4 .  Project organisation has been found to fit a number of widely – varying situations , from building contractors and advertising agencies to accounting and consulting firms . The increasing complexity of projects that require the highly specialised experts and rapid changes from one project to another often demand the flexibility provided by project structure .It accommodates the formal ideas of classical thinking together with the team and participative ideas of behavioral  contributions .

Demerits. Thus , the project organisation provides flexibility , coordination of resources , fixation of responsibility and check over project work . However , the project structure suffers from the following drawbacks :

1. There is organisational  uncertainty because a project manager has to deal with professionals drawn from diverse fields . Often they differ in approach and interest . There is lack of clearly defined responsibility , clear communication lines and measurement yardsticks . Lack of prescribed organisational processes make the job of a project manager very frustrating . There is danger of over – specialisation . In addition , lack of awareness of project problems and personal prejudices on the part of top people may jeopardise a project .

 2. A project manager is responsible for project outcomes . But the ongoing conventional organisation does not give him unlimited authority . Therefore , budgets , manpower and control are serious problems.

 3. Organisational uncertainties may lead to interdepartmental conflicts . People have fear of being forgotten at the time of promotion due to separation from the main structure . There may be role conflicts , poor loyalty and under utilisation of resources . Excessive supervision and multiple controls cause frustration . Decisions may be based on scanty data due to pressures for completion of projects on time .

4. There is considerable fear among personnel that the completion of a project may result in loss of job . The feeling of insecurity and varying status creates considerable worry about career progress .

 Project organisation can be effectively applied under the following situations :

( a ) The project offers a unique or unfamiliar challenge .

 ( b ) The project has definite goals and well – defined specifications .

( c ) Successful completion of the project is crucial to the organisation .

 ( d ) The project is complex with interdependent tasks .

( e ) The assignment is to be completed within the given time limit .

Matrix Organisation

Matrix organisation or grid organisation is a hybrid structure combining two complementary structures – functional departmentation with pure project structure . Functional structure is a permanent feature of the matrix organisation and retains authority for the overall operation of the functional units . Product departments or project teams are created whenever specific projects require a high degree of technical skill and other resources for a temporary period . Functional departments create a vertical chain of comma while the project teams form the horizontal chain . The functional or vertical line of authority intersect product or horizontal lines , thereby forming a matrix or grid . Thus , a matrix organisation is a two dimensional structure , a combination of pure project structure and the traditional functional departments.

Members of a particular project team are drawn from the functional departments and are placed under the direction of a project manager . A project manager has overall responsibility for the success of the particular project . He has authority over the members of the project staff . On the completion of a project , the project team is dissolved and its members including the project manager revert or return back to their respective departments for reassignment to new projects . They may again be assigned to another project . Each project has a definite time duration.

The matrix organisation originated in the defence and aero – space industries in the USA . It differs sharply from the typical one boss command structure based on the principle of unity of command . Matrix organisation has been defined as ” any organisation that employs a multiple command system that includes not only the multiple command structure but also related mechanisms and an associated organisational structure and behaviour pattern.

Sometimes , matrix and project organisations are considered as one and the same . However , there is a distinction between the two . In the project organisation , separate identifiable units are created for executing large projects . Every project manager has complete responsibility for the project and complete authority for the use of resources required for its accomplishment . Such organisational units or projects are like semi – autonomous divisions . On the other hand , in matrix organisation , the project manager shares resources with the functional managers . He does not have complete authority for use of resources . Pure project organisation is suitable for organisations dealing with a small number of long – term , manufacturing projects . Project of short duration are undertaken through temporary project teams.

Matrix organisation has been developed to meet the needs of large and complex organisations which require a structure more flexible and technically oriented rather than the functional structure. Temporary project teams are tailored to the successful completion of particular projects. For instance, chemical, mechanical, industrial and electronic engineers may work together with physicists, accountants and other professionals to develop a new product. Project manager’s authority flows horizontally while functional manager’s authority flows vertically.

Matrix organisation is used in industries with highly complex product systems. e.g., aerospace industry where project teams are created for specific space or weapon systems.

Merits. Matrix organisation provides the following benefits:

  1. It helps to focus attention, talent and resources on a single project which facilities better planning and control. Specialists from several functional departments provide a pool of expertise, particularly technical skill. The project manager can keep a track on the progress of work to ensure the completion of project in time. specialised knowledge is available to all projects on an equal basis.

2. It is more flexible than the traditional functional structure. It can better respond to the inevitable changes in market conditions, technology, etc. that occur as work progresses on a project. Effective information system enables the organisation to respond quickly to project needs and customer desires.

3. It provides an environment in which professionals can test their competence and make maximum contributions. More emphasis is placed on the authority of knowledge than the rank of an individual in the organisational hierarchy. Matrix organisation pushes decision-making down the chain of command.

4. It provides motivation to the project staff as they can focus directly on the completion of a particular project. It also improves communication by encouraging direct contact and reducing the inhibitions arising from formal rank. The problem of coordination is reduced in so far as the project manager acts as the integrator of personnel from diverse disciplines. Responsibility for a particular project is clearly defined. Lines of communication are short and well-established.

5. Each project is assigned the physical resources and personnel it requires. Thus, unnecessary duplication is avoided. Functional departments provide support to projects. Project people revert back to their functional departments when the project is completed. There is no sense of job insecurity. A better balance between time, cost and performance is obtained. Interactions between specialists encourage creativity and broadening of vision.

Demerits. Matrix organisation suffers from the following limitations:

  1. It violates the principle of unity of command. Each employee has two bosses-the functional boss and the project manager. During his assignment to a project, he works under the command of the project manager. In addition, he receives orders from his permanent supervisor. This creates role conflict or confusion and may create jurisdictional conflicts in the organisation. Multiple flows of authority may create problems of vertical coordination.
  2. The scalar principle is also violated as there is no definite hierarchy. Project managers and functional managers are distinct but do not stand in a scalar relationship. Working relationships are not very clear. Balance of power between functional mangers and project managers is not clear.
  3. Conflicts may arise due to the heterogeneity of team members. People are drawn temporarily from different departments. Project manager does not have line authority over his heterogeneous group of personnel. This results into problems of coordination.
  4. In matrix organisation, organisational relationships become very complex. Apart from the formal relationships, informal ones also arise creating problems of coordination.
  5. The success or failure of the functional group depends upon its performance in the project. This may lead the group to emphasise its own function even at the cost of the overall project. As a result conflicts arise between the functional groups. Personnel often lack commitment to project goals and their morale trends to be low.
  6. The secondment of specialists from functional departments to a number of projects makes it difficult for the functional heads to appraise employee performance. It is quite likely that job requirements in projects may be different from the original job in functional departments. In the absence of proper adjustment of compensation to take account of such differences, discontent may arise.
  7. Matrix organisation is not a homogeneous and compact group. The multiplicity of vertical and horizontal relationships may impair organisational efficiency. Deputationists may try to emphasise their own specialisations at the cost of the overall project. There is lack of jurisdictional clarity.
  8. Switching over to a matrix organisation is a time consuming process. It requires major organisational changes which may give rise to numerous problems. The reorganisation may be resisted by individuals in so far as it alters the existing system in terms of status and security. New reporting and accounting systems also need to be developed so that individuals in authority are supplied with timely and accurate data on which they can base their decisions.

Despite these drawbacks, the matrix organisation is breaking down barriers to action that have been built into traditional hierarchies. If role prescriptions are clearly defined and the decision-making authority of the project manager differentiated from that of the functional manager so that each individual knows who will decide regarding specific matters, matrix structure can be effective. Prof. John F. Mee of Indiana University, U.S.A., a major architect of the matrix system, suggests that it will be a dominant form of organisation as we get more complex products and more sophisticated managers.

            Matrix structure can be successful only when there is an agreement amongst the key executives regarding the sharing of authority and resources. The roles of project and functional managers should be clearly defined. There should be common willingness among both functional managers and project managers to resolve the conflicts that may arise due to the sharing or resources. Matrix organisation is likely to be popular in future as the emphasis on end-results and goal accomplishment is increasing.

      The matrix from of organisation can be used in public institutions too. For instance, in a college, faculty members may be assigned to their specialised departments such as finance and accounts, marketing, personnel and industrial relations, economics, etc. Then there are programme managers for the executive development programme, post-graduate programme, research programme, consultancy, etc. Each faculty member may work for several programme managers for varying periods of time. In general, matrix organisation is useful wherever a new task is to be done, when specialists from different areas must be grouped together, when there is a compact project, e.g., construction of a building, masking a missile, etc. and when a time deadline must be met within certain cost limits.

Role of Project Manager

Under matrix organisation, the project managers and functional managers play different roles. A project manager is assigned the responsibility for managing a specific project. His role is explained below:

  1. He is the overall incharge of the project. Therefore, he lays down the basic policies and strategies to achieve the project objectives.
  2. He determines the efforts and resources required to accomplish a specific project. He will draw personnel from different functional departments according to the requirements of the project.
  3. As a focal point of the project, he determines the cost and time schedule of the project. In order to control costs of the project at various stages of its execution, he formulates the project budget.
  4. The project manager coordinates the activities of functional groups. As an integrator, he draws a schedule of various operations and communications to the functional groups. He also motivates the personnel working under his guidance without the use of line authority.

Role of Functional Manager

Each functional manager is responsible for maintaining the integrity of his function. The role of a functional manager is follows:

  • A functional manager exercises line authority over his subordinates in order to ensure uniformity of function in all the projects.
  • He is responsible for a particular functional area and concentrates on the activities of his discipline to ensure efficiency of operations.
  • He assigns specific individuals to various projects at the request of the project managers. In this way, he determines who will perform the specific tasks.
  • He evaluates the performance of all his subordinates working directly under him or assigned to different projects.

Guidelines to Increase Effectiveness

Project and matrix structures are desirable where flexibility and innovation are required. Where resistance to change constitutes an important problem and attention is to be focused on specific tasks, these formats produce better results. The following steps may be taken to improve the effectiveness of project and matrix organisations:

  1. The objectives, scope and functions of a project should be clearly defined. This will enable the project manager to avert damaging oversights and to capitalise on opportunities to improve project results besides helping him to avoid misdirected efforts.
  2. Every project should be properly organised by appointing a full-time and experienced project manager, by assigning a number of persons, by maintaining balance of power between project managers and functional heads and by installing appropriate project controls. to build harmonious relations between key managers and functional specialists in a given project, it is necessary to define their multiple roles and decision-making powers. For instance, the project manager has to have authority over a certain design engineer under specified conditions while the chief design engineer has authority in other matters.
  3. The project manager must adopt a new approach to his job consisting of: (a) orientation towards human resource management in place of functional approach; (b) acceptance of purposeful conflicts; (c) realisation that project management is a dynamic activity where major changes are almost the order of the day.

The distinction between project organisation and matrix structure should be clearly understood. In pure project organisation, each project division is charged with complete responsibility for the accomplishment of specified tasks. Each project manager is assigned resources which he can use exclusively and independently for his division. But in matrix organisation, the project manager does not have complete authority for exclusive use of resources. Rather he shares them with the rest of the organisation. Secondly, the project organisation is most useful for the management of a small number of large products. On the other hand, matrix structure is more appropriate in case of a large number of small products. Matrix organisation is useful where a project requires only part time use of an expensive equipment. Matrix organisation is suitable when it is not possible to given a manager direct line authority over all the activities necessary to accomplish results.

Significant changes are taking place in business environment. These changes include globalisation, deregulation, information technology, telecommunications, market fragmentation, etc. Companies have to recognise their businesses in response to such changes. In order to keep pace with these changes, companies are ‘downsizing’ and ‘delaying’. They are reducing the number of organisational levels to get closer to the customer. In a very hierarchical structure top management gets too far removed from customers to fully understand their changing needs. Therefore, companies are trying to flatten their organisation structures. according to Tom Peters no well managed organisation needs more than five hierarchical levels. The key to flatter organisation is trying that each manager is able to manage more people. This could be achieved by empowering employees to excel at self-management.

   As a result of this trend, organisational hierarchy is giving way to networking. With the help of computers, e-mail and fax machines, messages increasingly pass between people at different levels of the organisation. Companies encourage more teamwork centred around core business processes, thereby breaking down departmental barriers. Companies are also trying to breakdown barriers between themselves and their suppliers and distributors by treating them as business partners and including them in the information flow.

 Network Organisation

One of the rapidly developing practices in business throughout the world involves a firm in cooperative relationships with its suppliers, distributors and other business associates. This network of relationships enables the firm to achieve both efficiency and flexibility. It provides the benefits of both mechanistic and organic structures.

      The networking enables the principal organisation to rely upon the smaller close to the market, partner to sense the impending changes in the environment and to respond at the local level, thus relieving the parent organisation of that necessity.

     In a network structure, the principal firm sub-ordinates many of its functions to other organisations and coordinates their activities. The services are outsourced to separate firms that are connected electronically to the central office. Sub-contractors flow in and out of the network depending upon its changing requirements. The hub organisation maintains control over work processed by various sub-contractors as shown in figure.

The exact form of the network organisation varies and it can take different shapes. Some organisations develop relationships only with key suppliers. Others develop relationships with marketers and distributors. In the extreme case, the parent organisation functions much like a broker and deals independently with product designers, producers, suppliers and marketers. The critical managerial decisions involved here are, which of the functions to buy, which of the functions to produce, and how to manage the relationships with the network partners. Managers in a network organisation have to face less environmental uncertainty because they have sub-contracted that responsibility to their counterparts in the network. Network organisation is, in a sense a ‘boundaryless organisation.”

     Thus, a network organisation is a decentralised structure in which power is distributed among interdependent members of the network. Control over resources and decisions concerning their allocation is distributed radially (from the roots) among outer members of the network. At their discretion the members may delegate

 authority to coordinate their activities to a central body of representatives. A network organisation differs from a hierarchy, in that the ‘higher’ levels are dependent on the ‘lower’ levels rather than vice versa. In a hierarchy, decentralisation occurs at the discretion of upper management. In network organisation, on the other hand, centralisation occurs at the discretion of the ‘lower-level’ managers. A network organisation can be drawn in concentric circles (see figure).

In Japan, network form of organisation is called Keiretsu. It involves a very large financial institutions, a very large industrial conglomerate and smaller firms in a network of relationships that enable the large firms to produce the product and the smaller firms to supply components, do research and design, and perhaps distribution and market. The participating bank provides the financial resources to support the network of cooperative relationships. This form of inter-organisational network has enabled the Japanese industry to grow without experiencing supply bottlenecks and damaging competition from domestic firms.

      In America, General Motors, Chrysler and Ford Motors have entered into an agreement to develop battery technology for electric cars. IBM and DELL own equity shares of key suppliers of component parts. In India, Maruti Udyog Larsen and Toubro, Wipro and ITC make use of networking.

    The network organisation may emerge as a dominant form of organisation structure for firms desiring to compete in the global market place. The network organisation represents a response from organisation which want to maintain flexibility to deal with the dynamic changes of the global economy. However, the critics of network organisation call it the “hollow corporation”. Definite guidelines on how the networking relationships should be organised and managed are yet to be developed.

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