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Organizational structure refers to the way that an organization arranges people and jobs so that its work can be performed and its goals can be met. When a work group is very small and face-to-face communication is frequent, formal structure may be unnecessary, but in a larger organization decisions have to be made about the delegation of various tasks. Thus, procedures are established that assign responsibilities for various functions. It is these decisions that determine the organizational structure.
In an organization of any size or complexity, employees’ responsibilities typically are defined by what they do, who they report to, and for managers, who reports to them. Over time these definitions are assigned to positions in the organization rather than to specific individuals. The relationships among these positions are illustrated graphically in an organizational chart (see Figures 1a and 1b). The best organizational structure for any organization depends on many factors including the work it does; its size in terms of employees, revenue, and the geographic dispersion of its facilities; and the range of its businesses (the degree to which it is diversified across markets).
There are multiple structural variations that organizations can take on, but there are a few basic principles that apply and a small number of common patterns. The following sections explain these patterns and provide the historical context from which some of them arose. The first section addresses organizational structure in the twentieth century. The second section provides additional details of traditional, vertically-arranged organizational structures. This is followed by descriptions of several alternate organizational structures including those arranged by product, function, and geographical or product markets. Next is a discussion of combination structures, or matrix organizations. The discussion concludes by addressing emerging and potential future organizational structures.
DURING THE TWENTIETH CENTURY
Understanding the historical context from which some of today’s organizational structures have developed helps to explain why some structures are the way they are. For instance, why are the old, but still operational steel mills such as U.S. Steel and Bethlehem Steel structured using vertical hierarchies? Why are newer steel mini-mills such as Chaparral Steel structured more horizontally, capitalizing on the innovativeness of their employees? Part of the reason, as this section discusses, is that organizational structure has a certain inertia—the idea borrowed from physics and chemistry that something in motion tends to continue on that same path. Changing an organization’s structure is a daunting managerial task, and the immensity of such a project is at least partly responsible for why organizational structures change infrequently.
At the beginning of the twentieth century the United States business sector was thriving. Industry was shifting from job-shop manufacturing to mass production, and thinkers like Frederick Taylor in the United States and Henri Fayol in France studied the new systems and developed principles to determine how to structure organizations for the greatest efficiency and productivity, which in their view was very much like a machine. Even before this, German sociologist and engineer Max Weber had concluded that when societies embrace capitalism, bureaucracy is the inevitable result. Yet, because his writings were not translated into English until 1949, Weber’s work had little influence on American management practice until the middle of the twentieth century.
Management thought during this period was influenced by Weber’s ideas of bureaucracy, where power is ascribed to positions rather than to the individuals holding those positions. It also was influenced by Taylor’s scientific management, or the “one best way” to accomplish a task using scientifically-determined studies of time and motion. Also influential were Fayol’s ideas of invoking unity within the chain-of-command, authority, discipline, task specialization, and other aspects of organizational power and job separation. This created the context for vertically-structured organizations characterized by distinct job classifications and top-down authority structures, or what became known as the traditional or classical organizational structure.
Job specialization, a hierarchical reporting structure through a tightly-knit chain-of-command, and the subordination of individual interests to the superordinate goals of the organization combined to result in organizations arranged by functional departments with order and discipline maintained by rules, regulations, and standard operating procedures. This classical view, or bureaucratic structure, of organizations was the dominant pattern as small organizations grew increasingly larger during the economic boom that occurred from the 1900s until the Great Depression of the 1930s. Henry Ford’s plants were typical of this
growth, as the emerging Ford Motor Company grew into the largest U.S. automaker by the 1920s.
The Great Depression temporarily stifled U.S. economic growth, but organizations that survived emerged with their vertically-oriented, bureaucratic structures intact as public attention shifted to World War II. Postwar rebuilding reignited economic growth, powering organizations that survived the Great Depression toward increasing size in terms of sales revenue, employees, and geographic dispersion. Along with increasing growth, however, came increasing complexity. Problems in U.S. business structures became apparent and new ideas began to appear. Studies of employee motivation raised questions about the traditional model. The “one best way” to do a job gradually disappeared as the dominant logic. It was replaced by concerns that traditional organizational structures might prevent, rather than help, promote creativity and innovation—both of which were necessary as the century wore on and pressures to compete globally mounted.