Importance and Types of Organisational Structure

You must have heard/read, "an organisational structure details how certain activities are delegated towards achieving an organisation's goal. It outlines an employee's role and various responsibilities within the organisation. The more authority employees have, the higher they'll be on the organisation structure. In addition, the more organised the structure is, the more efficiently an organisation operates........." and so on......

The reason why I'm mentioning this at this point in time is, "The importance of organisational structure" and "the rise and fall of start-ups and entrepreneurs because of bad organisational structure".

Recently, an Edtech start-up approached me for consulting services, they wanted me to work on market assessment, brand strategy, and reviving the organisation. And most importantly, they wanted me to focus on the factors that could create a value. They wanted an elaborated SWOT analysis. 

Post discussions (and during the discussions) I understood one thing, "Even after helping them with an elaborated SWOT analysis, market assessment reports, and all the related strategies the organisation is going to fail." 

Though they could assess how the future of education system in India, they couldn't make their mark. They were in the market for more that two years but still they couldn't achieve the 10% of their target even before Covid pandemic/lockdown. A phase that saw the boom of edtech companies in the world. They couldn't grab the opportunity. 

Though these entrepreneurs had the power and skill too disrupt the market they couldn't make it.

You might be thinking, "Why?"

Well, the credit goes to Bad Organisational Structure, Miscommunication, Misalignment between technology and decision making, Low Morale in employees, and Retention. 

All these issues negatively impacted the bottom line.

Mismatched Hierarchies, Unclear Roles, and no proper processes and system created hurdles in their progress. Founder and Co-founder clash had created a lot of disturbance. 

Initially they denied when I put this point forward. They tried to divert the topic, but lated when they realised that the problem lies within them and their organisational structure everything started to fall in line. 

Benefits of Organisational Structure:

• Faster Decision Making
• Multiple Locations 
• Improved Efficiency
• Better Communication
• Greater employee performance
• Reduce conflict

You might ask, "What is the best organisational structure for a start-up?"

Well, that depends on the Entrepreneurs, Co-founder, and team. No one organisational structure is best for businesses. 

There are eight type of organisational structures each of which is either centralised or decentralised in terms of who has the power. 

1. Hierarchical Structure (also known as line structure)
2. Functional Structure
3. Divisional Structure (also known as Multi-divisional structure)
4. flat structure (also known as horizontal structure)
5. Matrix Structure
6. Network Structure
7. Team Structure
8. Project based Structure

When determining the right one for your organisation, think about 

• how much power would like to give your employees, 
• how much room you would like to leave for innovation, 
• how large your company is, and 
• how much interaction among employees matters to you.

Now let us look into each structure.

Hierarchical Structure: It is the most common type of structure. It follows a chain of command system where the power flows from Board of Directors down to CEO through the rest of the company from top to bottom. This makes the structure a centralised organisational structure. 

Pros:

• It clearly defines reporting relationships and division of authority
• It details corporate ladder and promotional structure thereby encouraging high-quality work
• It helps to specialise employee's work
• It cultivates stronger relationships among employees within a team

Cons:

• Could delay project completion and discourage employees from taking risks.
• It may encourage employees to prioritise their own department and direct supervisors instead of the organisation
• it can make employees feel like they have no say in how to approach their projects

Functional Structure: This structure is a centralised structure that greatly overlaps with the hierarchical structure. Each department had its own staff director who reports to CEO. 

Pros:

• It helps employees develop specific, specialised roles
• it boosts individual departments and employees self sufficiency and innovation
• it scales easily to work for companies of all sizes

Cons:

• It doesn't encourage communication and interaction among different departments
• It hides key details of departmental processes and strategies from employees outside that department

Divisional Structure: The centralised structure is more common in enterprise companies with may large departments, markets, and territories, like food conglomerate.

Pros:

• Different departments have some flexibility to operate separately from company at large
• it's more ada[table to customer needs
• Individual departments have more autonomy and room for innovation

Cons:

• It risks accidental duplication fo resources
• It encourages poor communication and low interaction among different departments
• It encourages internal competition across departments rather than uniting the company against outside competitors.

Flat Structure: It is a decentralised organisational structure in which almost all employees have equal power. At most, executives may have just a bit more authority than employees. This organisational structure is common in startups that take a modern approach to work or don't yet have enough employees to divide into departments.

Pros:

• Employees have more responsibility and independence
• It improves communication and interaction among employees
• It's faster to implement new practices or ideas, with less risk

Cons:

• Employees lack supervision.
• There could be confusion around reporting procedures
• Employees lack or don't develop specialised skills
• it has poor scalability as the company grows

Matrix Structure: The matrix structure is a fluid form of the classic hierarchical structure. This centralised organisation structure allows employees to move from one department to another as needed.

Pros:

• Supervisors have the flexibility to choose the best employees for a project
• it allows a dynamic organisational chart with varying responsibilities for employees
• Employees have the opportunity to learn and foster skills outside their primary roles

Cons:

• There could be conflict of interest between the needs for project organisation and department organisation
• The organisation chart is prone to regular changes

Team Structure: It is a decentralised but formal structure that allows department heads to collaborate with employees from other departments as needed. It is similar to matrix structure but the focus in less on employee fluidity than on supervisor fluidity, leading to a decentralised functional structure.

Pros:

• The lack of compartmentalised labor drives productivity, growth, and transparency
• It prioritises employee experience over seniority
• It minimises employee management tasks

Cons:

• It could confuse employees, given the potential subversion of traditional executive and lower-level roles
• It obscures the corporate ladder and may disincentivize employees from working hards to be promoted.

Network Structure: It is especially suitable for a large, multi-city, or even international company operating in modern era. It organises not just the relationships among departments in one office location, but the relationships among different locations and each location's team of freelancers, third-party companies to whom certain tasks are outsourced, and more.

Pros:

• It improves understanding of how functional roles are distributed among onsite employees, offsite employees, freelancers, and outsourced third parties.
• It boosts flexibility for one department or location to delegate tasks to another
• It drives employee communication, collaboration, and innovation 
• It clearly outlines workflows and chain of command in large businesses

Cons:

• It is complex, especially in regard to out-of-office processes
• It is vague as to which employee, department, or office should make the final decision

Project based Structure: In this structure, the focus in on one project at a time. In this centralised structure, the project managers act as supervisors, not just resource allocators and decision makers. It involves demobilisation of teams and resources upon a project's completion. 

Pros:

• It fosters more efficient decision-making and communication
• The sense of urgency around project completion increases employee cooperation
• It increases employee flexibility and versatility 

Cons:

• The strict deadlines could increase workers stress
• The power might be too strongly centralised with the project manager
• It lacks the opportunity for long-term skill development among employees

End Note: 

Each of the organisational structures has its own pros and cons, go through it an decide what type suits best and is suitable for your organisation.