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Formal Organizational Structure: Creating Order from Chaos

Arjun Kulkarni Oct 30, 2018
An organization would be chaotic without a sound structure to govern it. Organizational hierarchy is required as it lays down the structure in which the organization will work.
Organizational structures have been used by man since time immemorial. Right from the early days of hunter-gatherers, to tribal warlords, one man would be given the task of leading the pack and assigning tasks to each member of his team. Right from the oldest kingdom to the papacy, hierarchical structures have been followed everywhere.
Each person was given his or her task, and was expected to follow it. Each person was assigned different leadership roles and responsibilities that were required for the task at hand. At the end of it, there was also a strong reporting structure in place, that ensured accountability and performance appraisal.
The notion that the field of organizational structure and design is a relatively new concept is quite wrong. Society in itself is similar to such a structure.
If you have studied about the old civilizations, you will see that each group of people was assigned a task, right from agriculture, animal husbandry, cloth-stitching, and metal-work. We implement the same concept in businesses today.

Formal Structure Explained

It is defined as a "hierarchical concept of subordination of entities that collaborate and contribute to serve one common aim."
This definition is easy to understand and it defines the term in its crudest form because at the root of all the management jargons, organizational structure is really only that - a hierarchical structure that lays down each employee's position in the organization. 

How Formal Organization Came to Be

While organizational structure still remains a pretty old concept, over the years it has undergone evolution to catch up with today's business models. As new models of business kept cropping up, the management needed to keep their operations up-to-date so that the organization could extract the best from it.
The timeline can be divided into pre-bureaucratic and post-bureaucratic. The older industrial organizational structures were based more on the line of kingdoms where the command and communication was only one-way, from the higher level of authority to the lower level. The lower levels were to obey as commanded and not expected to give any feedback.
The newer structures that emerged in 1970s, started encouraging two-way communication, allowing and considering suggestions from the lower levels.

Types of Organizational Structures

Types of organizational structures mean the basis on which they have been designed for business firms. The basis may be either functions or divisions. Let us look at them one by one.

Functional Structure

Here, the organization is divided on the basis of the functions that they perform, into departments such as Production, Sales, Marketing, Human Resources Management, Accounts, etc.
In each of the functional departments, the employees perform a set of similar tasks. There is a structure again within each department. For example, the marketing department sample is shown.

President → Marketing Manager → Individual team heads → Junior team members. 

Divisional Structure

It will divide an organization into divisions in charge for different products. As the description suggests, this structure will be used by those companies which produce more than one product. For example, a car company would be divided into Small Car Division, SUV Division, Trucks Division, etc.

Matrix Structure

It is pretty obvious that in very large organizations it is not going to be possible to have just one of the two structures. 
Large organizations that have a large number of people working will need a structure that is a combination of both the forms mentioned. This is called a Matrix Structure. In a matrix structure, the organization is divided first into divisions and then into departments.
The best organizations of the world today are going beyond the traditional formal structure and trying to form boundary-less structures. Although very few companies today have successfully implemented it, the idea is very simple: to have an organization where no one is indispensable.
Each person is encouraged to go beyond the formal lines of division and work in other departments of the company, so as to be the 'complete employee'. It is advocated as the secret to break monotony too.