In creating an organizational structure, a business assigns authority, marks out jobs and determines the relationships between jobs. These are important decisions, because they affect things that go to the heart of how business is conducted. For instance, organizational structure determines how resources and knowledge are shared. In the United States, most businesses approach structure with efficiency and control in mind. The outcome is the traditional pyramid organizational structure, which is named for its rough shape on an organizational chart.


It’s easy to recognize the pyramid structure from its chart. A single position heads up the company at the chart’s top, which forms the tip of the triangle. On the bottom, a wide row of employees creates the pyramid’s base. In between the top and bottom are rows of managers. In a small business, the pyramid will have few rows, maybe the owner, a few supervisors and the employees. The larger the company gets, the more management rows the pyramid takes on. These management rows contribute one of the pyramid structure’s typical characteristics: bureaucracy.


To form the pyramid structure, an owner first creates formal job positions. Before the structure is instituted, most of the employees have likely been doing a range of work as the need arose, creating a group of jack-of-all-trades employees with overlapping roles. In creating formal jobs, an owner will develop employees who do their respective jobs alone and in so doing, become efficient experts. Accountability and order also increase as people take on specific assigned roles. The managers overseeing employees begin writing out rules and procedures to make sure work is performed as management wants.


Departmentalization refers to how jobs are grouped together in an organizational structure. Businesses using the pyramid structure approach departmentalization by classifying jobs according to what function the work plays in the organization. For instance, some jobs will serve a marketing function, others will belong to production and so on. An owner then forms departments by grouping jobs of like function together. This approach to departmentalization gives the pyramid structure its other name -- the functional organizational structure. Functional departmentalization allows resources to be easily shared by those who need them and enhances communication and training.


Someone has to be in charge. The pyramid structure assigns authority in a vertical hierarchy, with power increasing as managers move up the pyramid toward the top. Authority is important in the pyramid structure and is used to exert control over work functions. Exerting such control through oversight, rules and procedures allows managers to ensure that tasks and outputs are efficient, standardized and up to a certain quality. This reduces waste and allows for mass production. Unfortunately, by lowering autonomy, worker morale suffers. Another disadvantage of this management-heavy approach is bureaucratic red tape.