A company's organizational structure determines how it approaches operating the business. Studying the different characteristics of the company and determining how it is organized, you can compare structures, examine weaknesses and identify strengths. Such an analysis lets you propose changes in the organizational structure to improve performance.


If your company has managers in charge of sales, operations, customer service and finances, for example, it is organized functionally. If it has managers responsible for products or geographical territories, the company has a product- or market-based organization. A matrix organization describes when your company's managers are responsible for projects or particular tasks, and employees report to one manager for carrying out work and to another for discipline, salaries and promotion. Each type of organizational structure has strengths and weaknesses.


Organizational structures based on functions, geographical territories or products have a high level of control over what work employees carry out and how they perform that work. These organizational structures are hierarchies where managers delegate authority and are responsible for outcomes. Matrix organizations have reduced levels of control because an employee reports to two managers, depending on the issue at hand. A high level of control is important for companies operating in tightly regulated industries such as financial services or health care. Your analysis must look at your company's operating environment to determine whether the level of control in place for your organization is appropriate for its operations.


Structures organized along functional, geographic or product lines have low coordination between employees because the managers focus on their own area of responsibility. Managers for different products within the company may undertake similar marketing initiatives, resulting in duplication. Managers responsible for different functions may work at cross-purposes. Matrix organizations have better coordination because the work and the functions are carried out by the same group of employees. An analysis in terms of coordination explores to what extent the reduced control but improved coordination of a matrix structure would benefit your company.


Matrix organizations have greater flexibility in response to changes in the business environment. When companies with a hierarchical structure face unexpected situations, top-level managers removed from the working level have to make the decisions. Because they don't have detailed knowledge of the changed situation, they may not be able to decide or may make the wrong decision. In matrix organizations, the manager who makes the decisions works more closely with the project or task group. An analysis of the organizational structure in terms of flexible response to new situations must focus on the business environment. Rapidly changing marketplace conditions favor use of a matrix organization, while hierarchical organizations perform effectively in mature, stable markets.