When organizing a business, you have to balance the need for formal structures with the requirement that the business might have to quickly respond to changes in the marketplace. Organization structure is vital, whether a small start up, small business, or large business with upper, lower, and middle management. Business management begins with business strategy, and type of structure may need to shift to excel in the competitive 20th century economy.
A simple business environment lends itself to a traditional hierarchical organizational structure with a clear chain of command. A complex, changing environment - which is becoming increasingly common in today's globalized, digital age modern organizations - needs the more flexible organizational design exemplified by a contemporary organizational structure. Your type of organizational structure, whether traditional organization or functional structure and so on, depends on what the company produces and the complexity of the markets in which it operates.
Level of Control
The traditional organizational structure is a pyramid with a chief executive at the top. The CEO delegates some of his authority to immediate subordinates who, in turn, have several layers of managers reporting to them. The structure is simple, and the lines of authority are clear. This type of organization works well when challenges at the working level are predictable, but it is inflexible when a working-level employee encounters unexpected situations outside of their typical specialties. The employee has to wait for instructions and doesn't have the authority to make decisions. A contemporary structure empowers working-level employees, reduces centralized or top-down control and attributes all decisions to organizational levels responsible.
The contemporary organization achieves the empowerment of working-level employees by introducing horizontal elements into the organizational structure. Instead of having a single manager as in a formal hierarchy, employees in contemporary organizational structures report to one manager for disciplinary issues and other managers for work and product-related matters. This structure encourages the formation of teams that make their own decisions. By moving some of the decision-making down to the working level, the contemporary organizational structure achieves a greater flexibility in meeting external challenges.
While the contemporary structure is more flexible, it is less efficient. Making decisions lower on the organizational structure means the company has to disseminate information required for the decisions and the impacts of the decisions themselves throughout the organization. Additional personnel have to make sure the working level employees have the required data and know about the decisions being made by other teams. The price of the additional flexibility is the cost of the required coordination.
Flexibility is only useful if it results in effective responses. Companies can achieve some flexibility within the traditional organizational structure, but the managers and executives make their decisions at a distance from where the work is being carried out. A contemporary structure that has shifted decisions to the working level ensures that the employees most familiar with the work make the corresponding decisions. The decisions respond to the requirements of the marketplace and let the company quickly adjust to changing conditions.
A matrix organization can help achieve company goals by combining previous methods and offering a boundaryless organization emphasizing connectivity and team-based approach to project management. Unlike divisional structure, implementing a matrix structure integrates departments and encourages teamwork across competencies.