Hierarchical Structure Used in a Modern Organization
Modern companies have many structural options, from the traditional functional structure to more innovative and flexible schemes. Hierarchies differ widely in these structures: Some have many layers of bureaucracy, while others have none. The effectiveness of each approach depends on how well the structure facilitates the strategic objectives of a company. Some companies -- those creating standardized services or products, for instance -- need a mechanized approach to business, which hierarchical layers provide. Others need a loose organization better adapted to a dynamic market.
Small- to mid-sized companies tend to choose the functional organizational structure, which departmentalizes according to similar tasks such as marketing and production. The functional structure is one of the "tall" or "vertical" structures that feature many hierarchical layers, including several management tiers. The management hierarchy is mechanistic, allowing for strict oversight, standardized output and efficiency. Grouping similar jobs also means savings through economies of scale. Combined with efficiency, this hierarchical approach gives organizations a chance to keep prices low and position themselves as cost leaders. Such a setup, however, discourages creativity and employee empowerment.
The team structure is a “flat" or "horizontal" structure. It dispenses with layers of middle management and pushes decision-making power down to employees. Grouped in teams devoted to accomplishing some strategic goal, employees make decisions according to expertise. This “less is more” approach to hierarchy fosters a sense of employee ownership, morale and creativity. The lack of bureaucracy allows the company to behave dynamically and flexibly. Because teams can be dissolved and re-formed easily, a company using the team structure can quickly adapt to changing market conditions.
The matrix approach to organizational structure attempts to gain the advantages of both the team and functional structures while minimizing their disadvantages. It creates a functional hierarchy, gaining oversight ability and economies, while also relying on cross-functional teams to accomplish goals. Pulling representatives from different departments enhances communication and interdepartmental coordination. The major drawback to simultaneously establishing both a vertical and horizontal hierarchy is the potential conflict of interest when employees answer to two bosses.
The network or virtual organization tends to forgo hierarchies altogether. It replaces departments with outside alliances, hiring other businesses to fulfill its functional needs. The company itself is limited to a small group with limited support staff. Passing on functions such as manufacturing or shipping to others means losing control over processes, but virtual organizations gain in low overhead and flexibility. A company can hire or fire outside help as it sees fit.
The divisional organizational structure is much like the functional structure except it first segregates jobs into strategic business units, or SBUs, that focus on a certain location, product type or customer. After creating these divisions, organizational designers then create a hierarchy for each SBU, most often according to the vertical functional structure. For international or other complex companies, this structure eliminates bloat. Each SBU operates as if it is autonomous, making the company as a whole better able to respond to the specific concerns of an area, customer or the consumers of a particular product or service.