Types of Organizational Systems
There are four main types of organizational systems. Deciding which one works best for a particular company or enterprise requires answering a number of questions, including about operations, growth potential and accountability. These factors and more may help determine the final structure of an organization.
The entrepreneurial structure involves a strong, centralized leadership and works well for smaller companies. In classic management theory, this type of organization was referred to as having a line structure. There was a definite and linear chain of command and responsibility. The owner, president or chief executive officer makes the major decisions and is usually easily accessible to all workers. He wields total authority and shoulders total accountability. However, the leader may eventually be hampered by an inability to know all things about the business. As a company expands, the entrepreneurial leader may find the company has outstripped his expertise and time.
A functional structure is organized around similar operations or tasks that need to be completed. Only slightly less centralized than the entrepreneurial form, a functional organizational system works best for smaller companies with a few satellite operations, usually all located on the same continent or in the same country.
A functional organizational structure might not work as well as a company expands. If the leader dies or decides to retire, finding a good successor becomes problematic. Longtime employees may have become good specialists but lack the ability to stand back and see the larger organization.
A divisional structure is one step further from the total centralized control exercised under the entrepreneurial system. This organizational structure groups operations according to similar products or geographical proximity. Rather than reporting to one single corporate head, each location is led by a general manager or similar company officer who in turn reports to the chief executive or president. This structure offers more flexibility. On the other hand, competition among divisions for scarce resources, the duplication of effort and confusion over responsibilities regarding financial performance may increase as the individual divisions grow larger.
The matrix organizational structure is difficult to plan and implement. It is used most successfully by organizations that need highly independent and creative thinking in a chaotic environment. A matrix is very decentralized in its decision-making, making it good for multinational corporations with diverse operations on different continents. A matrix works best when creativity is more important than cost control and quick decision-making.