An organizational structure is mandatory to define the workflows and hierarchies prevailing in the organization. It is very necessary that each employee must know the scope and domain of his tasks. He must also be apprised of all his superiors; whom he can approach for clarification of doubts. The management chooses the organizational structure after carefully evaluating the long-term vision of the company, the scale of its operations, the type of employees it has and the nature of technology and systems it uses.
Long-term Organizational Goals
The management chooses an organizational structure very carefully. It evaluates whether it wants to delegate authority to its employees or whether it wants to make all the final decisions. If it decides on keeping authoritative powers with itself, it chooses a horizontal organizational structure. Here, there are very few levels of hierarchies and the management always makes ultimate decisions; whether small or big. However, when the scale of operations increase, it becomes difficult for the management to get involved in small matters, and it may decide on delegating powers and authority.
Size of Operations
The size and scale of operations is a major determinant of the organizational structure. A restaurant business can afford to centralize its authority and decision making, but a large computers manufacturing firm cannot. As the business expands, it becomes mandatory to decentralize authority and departmentalize all important strategic functions. A large organization has different departments for different functions like marketing, production, finance and human resources (HR). Each department takes care of its function, and later all chores are collated to form organizational tasks.
Skills of Employees
The skills and educational qualifications of the employees also influence the choice of the type of the structure. A law firm would be constituted of attorneys. These individuals would have vast professional and educational expertise and experience. It would get very difficult to maintain authority over them at all times. They must be given a free hand to make their own decisions. Otherwise, there are chances of ego clashes between the employees and the management. It is very easy to maintain authority over low-rung laborers.
The types of technologies used by the organization also determine the type of organizational structure. A company that has automated its operations can choose to decentralize its authority. The systems would monitor progress of the employee throughout. Hence, the task of the employee's immediate superior would be to provide guidance as and when required. Also, the type of technologies and systems used must be considered. The interdependence of the functions on the technologies must be assessed.