Organization requires the creation of structural relationships among different departments and the individuals working there for the accomplishment of desired goals. Every enterprise has to evolve its own organisation structure on the basis of its size, field of activities, and ability of personnel. 

Different types of organisational structure are as follows:

  1. Line organisation structure 
  2. Line and staff organisation structure 
  3. Functional organisation structure
  4. Committee organisation structure
  5. Project organisation structure
  6. Matrix organisation structure
  7. Product organisation structure
  8. Geographical organisation structure
  9. Decentralised business divisions,
  10. Strategic business units 
  11. Team structure 
  12. Virtual structure

Different Types of Organisational Structure

To accomplish the desired goals, an organisation requires the creation of structural relationships among different departments and the individuals. This is essential to define the lines of authority and relations among different positions and among persons occupying these positions. Every enterprise has to evolve its own organisation structure on the basis of its size, field of activities, and ability of personnel. 

There are several types of organisation structures, each reflecting a particular pattern of authority relationships. 


These forms may be classified as follows: 

  1. Line organisation 
  2. Line and staff organisation 
  3. Functional organisation 
  4. Committee organisation 
  5. Project organisation, and 
  6. Matrix organisation. 

Line and Staff Concepts: 

Line and staff is the most widely used concept of management. But misunderstanding about it has created a lot of confusion among managers. That is why Koontz and O’donnell have said, “There is probably no other area of management which causes more difficulties, more friction and more loss of time and effectiveness. 

Line and staff concepts can be looked at as functions and as authority-relationships. Line refers to those functions or officials who have direct accountability for accomplishing the objectives of the enterprise. They are placed in the direct chain of command over-workers. Staff refers to those functions or elements of the organisation that help the line in accomplishing the primary objectives. 


Because the objectives of companies differ, the nature of those activities which directly contribute to the major objectives will be different. Thus, in some companies, the manufacturing function is line, while in others finance may be treated as line. 

Line and staff may also be treated as authority relationships. In this approach line authority entitles a superior to direct the work of a subordinate. Line authority is a command relationship. It is the ultimate authority to command, act, decide, approve, or disapprove all the activities of the organisation. Line authority is the right to decide, right to direct, and right to require subordinates to conform to decisions and orders. It is the heart of the relationship between superiors and subordinates. 

The basic objective of line authority is to make the organisation work. Staff authority is advisory in nature. It is related to such auxiliary and facilitating activities as planning, recommending, advising, or assisting. A person having staff authority advises or provides a service for line managers. 

The staff managers have advisory responsibility. They do not issue orders, but work by planning, thinking, studying, informing, recommending, persuading, and suggesting. Staff officials remain in touch with the problems of top managers. They are sensitive to the needs of other parts of the enterprise. 


They relieve line managers of technical burden. By making a difference between line and staff, McFarland has stated that “Giving advice does not adequately distinguish between line and staff authority, because line managers may also advise and recommend. The primary distinguishing feature of staff authority is, therefore, that it is devoid of the right to command.” 

Koontz and Donnell have remarked, “A more precise and logically valid concept of line and staff is that they are characterized by relationships and not by departmental activities.” Henry Sisk and others point out that “The key to distinguishing between line and staff is not the function itself; rather, it is the degree to which the function contributes directly to the achievement of organisational objectives.” 

A brief summary of the major differences between line and staff authority is presented in Figure 9.2. 


1. Line Organisation: 

Line structure is the simplest and oldest type of structure. All other structures are simply modifications of it and are based on it. Line structure provides the basic framework for the entire organisation. 

McFarland states- “Line structure consists of the direct relationships that connect the positions and tasks of each level with each other and with those above and below.” Lundy has described, “Such a type of organisation is characterised by direct lines of authority flowing from top to the bottom of the organisational hierarchy and the lines of responsibility flowing in an opposite but equally direct manner.” 

In this type of organisation, positions are arranged in a line. Allen writes, “The” line is the chain of command that extends from the board of directors through the various delegations and redelegations of authority and responsibility to the point where the primary activities of the company are performed.” Line organisation is also known as scalar or hierarchical organisation. 

Chief Characteristics of Line Organisation: 

  1. It consists of direct vertical relationships between different levels. 
  2. It follows the scalar chain of command. It establishes superior-subordinate relationships. 
  3. Authority in such an organisation flows from top of the organisation to the lowest echelon. 
  4. Each member knows from whom one receives orders and to whom one reports. 
  5. A superior exercises direct command over his subordinates. He is also subject to the direction of his superior. 
  6. It is not based on division of work or specialization. 
  7.  It consists of those who are directly accountable for accomplishment of primary objectives of an enterprise. 
  8. Every individual reports “in line” to a superior – a supervisory person who gives orders, instructions, decisions, and approval or criticism. 
  9. It provides channels of upward and downward communication. 
  10. It is hierarchical in nature. 
  11. Line officers have an “authority to command.” 

2. Line and Staff Organisation: 

As organisations grow in size and complexity, line managers find that they do not have the time, expertise, or resources to effectively get their jobs done. In response, staff units are created to support, assist, advise the line officials and in general reduce some of their informational burdens. Edwin Flippo states, “At some point in the growth of a firm, there will be a need for specialists to provide advice and support to the organisation.” “Staff” refers to those positions or units that are responsible for supporting or facilitating the line managers. 

According to Richard Daft, “Staff managers provide advice, conduct studies on line operations, supply the line (personnel hire people for the line), monitor line performance, and respond to the line’s request for support.” According to Newman and others, “Staff work is that part of managerial work that an executive assigns to someone outside the chain of command.” 


Terry says, “Staff means support and is intended to help the holder of line authority or the “deer.” According to James D. Mooney, “Staff service in organisation means the service of advice or counsel, as distinguished from the function of authority or command.” Thus, it is the function of the staff to guide, advise, counsel, and serve the line officer. Staff provides expertise. 

When both line and staff authority are included in an organisation, it is known as a line and staff organisation. According to McFarland, “Staff structure is used to expand and supplement line activities, by providing positions for various types of specialists.” Mooney has described three phases of staff service – the informative, the advisory and the supervisory. 

Dale Yoder stated the following major functions of staff as under: 

  1. Formulation of policy. 
  2. Programme planning. 
  3. Constant review and appraisal. 
  4. Consultation. 
  5. Services to the operating line. 

Main Features of Staff: 


To know the exact role and nature of staff, the following characteristics of the staff may be noted: 

  1. Staff is auxiliary in nature. 
  2. Staff derives its power primarily from its expert knowledge. It has an “authority of ideas.” 
  3. It provides counsel, advice, guidance, and recommendations. 
  4. It has no right to command. 
  5. It cannot demand accountability. 
  6. It is a support for the “doer”. 
  7. It provides facts and information on which the line can base its decisions. 
  8. “It is the thinking and planning arm of the organisation.” (Pfiffner and Sherwood) 
  9. Staff is not inferior to line. It is merely different. Staff is separate from the line, but subordinate to its authority. 
  10. It continually investigates and appraises line operations. 
  11. Staff managers are experts—they know more about their specialty than line. They carry on their work through “knowledge influence.” 
  12. Sometimes, staff managers are called “cost generators” versus “revenue generators.” 

In line and staff organisation, the line authority remains the same as it does in the line organsation. Authority flows from top to bottom. The main difference is that staff positions (specialists) are added to serve the basic line departments and help them accomplish the organization’s objectives more effectively. The staff officers do not have any power of command as they are employed to provide expert advice to the line officers. 

They supply information and recommendations to line men who make decisions. They conduct research and make plans. On account of growing complexity of business, line and staff structure has gained popularity in modern organisations. Expert knowledge is necessary to solve unique and complex problems. 

For example– personnel department is established as a staff department to advise the line executives on personnel matters. Similarly, finance experts, law officers, public relations managers or other executive committees may be appointed to advise line executives on related problems. Specialised staff positions may be created to give counsel and assistance in each specialised field of work. 

3. Functional Organisation: 


Functional organisation is a way of putting specialists to work. Under functional structure, a staff specialist is given command or line authority over other personnel in regard to his special field. Functional authority relationships give rise to functional organisation. This structure gives staff personnel temporary, limited line authority for specified tasks. 

According to Theo Haimann, “Functional authority is the authority conferred upon a manager to give orders relating to a specific function. It enables him to exercise authority over someone who is not normally his subordinate.” 

Pierce and Dunham state, “Functional authority allows a manager (line or staff) to command specific processes, practices, and policies related to the activities undertaken by personnel in other departments.” 

According to Koontz and O’Donnell, “Functional authority is the right which is delegated to an individual or a department to control processes, practices, policies, or other matters relating to activities undertaken by persons in other departments. In essence, under functional organisation, the line authority is channeled through staff, giving it the right to command line units in those matters regarding functional activity in which the staff specializes. 

There are two ways of exercising functional authority: 

(a) Staff managers may be given functional authority over their counterparts who are in lower levels of the organisation; and 


(b) The particular functional or specialised portions may be separated from the line manager’s job and assigned to the staff specialist. (Henry Sisk and Clifton) It is Taylor’s “Functional foremanship.” 

In fact, the credit of introducing a functional type of organisation goes to F.W. Taylor. He pointed out that it is unscientific to burden a foreman with the entire responsibility of running a department. He separated all the “brain work” from the foreman’s job and assigned it to the planning department in the office. His main idea was that “the direction of work must be decided by functions and not by mere authority.” 

He separated planning from execution. He divided work on the basis of specialization. Each worker had four supervisors who were specialized in one different function. Each workman was held responsible to many bosses. He pointed out that under this structure each worker came in contact with many members of management for directions rather than just one member – the foreman. 

Characteristics of Functional Organisation: 

  1. The entire organisational activities are divided according to specified functions. 
  2. Each function is performed by a specialist. He is expert in only a narrow range of skills. 
  3. A superior specialist has the right to command line units. He gives orders relating to his specific function. 
  4. Command authority is delegated to a particular group of specialists without bestowing full line authority. Thus, functional authority is a limited form of authority as it covers only specific task areas. 
  5. Functional specialist must be consulted before any decision is taken on any matter pertaining to his specialised area. Taylor says “Functional foreman is a king over his particular function.” 
  6. Functional authority, like staff authority, is subordinate to line authority. (McFarland) 
  7. A staff with functional authority can initiate as well as veto action in its area of expertise. (Mescon) 
  8. Functional authority crosses over departmental lines for specific activities. 
  9. It is a small slice of the authority of a line superior that is delimited. 
  10.  It does not require geographical separation. 
  11. It occupies a mid-way position between line and staff authority. Hicks and Gullett state, “This is a hybrid sort of authority.” 

4. Committee Organisation: 

Committees are a common feature of almost every organisation structure and design. They are a fact of organisational life. Although widely criticized, committees are a good means of problem solving, motivation, and greater output. Committees are regarded as a tool of coordination. 

According to Koontz and O’ Donnell, “The best method of developing a proper group spirit is to get men together. On troublesome problems the committee secures the advice of those best qualified to aid. It stimulates these men to give the company the best that is in them.” 


A committee is a group of people who meet to discuss and decide a particular problem. Terry has defined it as “a body of persons elected or appointed to meet on an organised basis for the discussion and dealing of matters brought before it.” 

According to William Glueck, “A committee is a group of two or more persons created to serve a particular purpose, make a decision, or make a recommendation.” In the words of Stephen Robbins, “Committee structure combines a range of individual experiences and backgrounds for dealing with problems that cut across functional lines.” 

5. Project Organisation: 

The project structure consists of a number of horizontal and diagonal relationships to complete specific project goals of a long duration. It is created when management decides to focus a huge amount of talent and resources for a given period on a particular project. Thus, a team of specialists from different areas is created in order to accomplish a complex project within established cost, time, and quality limits. 

When this project is completed, the project team dissolves. Its members move on to a new project, return to their original “home” department in the organisation, or may leave the parent organisation. A project manager is given line authority over team members during the life of the project. 

It can be noted that project organisation almost always coexists with the functional structure. But the project staff remains separate from and independent of the functional departments. Project managers adopt a new approach to their job. Fred Luthans says, “Project concept is a philosophy of management as well as a form of structural organisation.” 

Generally, project design is useful in all organisations that require a great deal of planning, research, and coordination. It is appropriate when tasks have definite goals, when tasks are complex due to interdependence, and when tasks are crucial to the success of the firm. This design is more flexible than the traditional functional structure. It focuses effort on a single undertaking. 

6. Types of Organisational Structure Matrix: 

During the last few years, matrix organisation design has become popular. This design establishes a grid, or matrix, of authority flows. It is a combination of functional structure with pure project structure. Luthans says, “When a project structure is superimposed on a functional structure the result is a matrix.” 


Authority within functional departments flows vertically while authority that crosses departmental lines flows horizontally. This two-way authority flow creates the matrix. Functional structure is a permanent feature of the matrix organisation. It has authority for the overall operation of the functional units. Project teams are added whenever specific projects require a high degree of technical skill for a short period. 

In a matrix organisation, team members are responsible to both the project manager and the head of the functional department to which they are permanently assigned. The functional department heads have line authority over the specialists in their departments (vertical structure). On the other hand, the project manager exercises “project authority.” 

Mescon and others point out that the project authority may vary from almost complete line authority on matters related to the project to almost purely staff authority, depending on what was delegated by top management.” The functional heads delegate duties, decide how the work is to be done, and supervise performance of tasks. Project managers, on the other hand, are held responsible for integration of activities and resources related to the project. 

Task Forces: 

Task forces are formed to deal with a specific task or problem. They deal with complex problems. According to McFarland, “A task force is similar to an ad hoc committee in that it is usually temporary, but differs in that it has broader power of action and decision, as well as responsibilities for investigation, planning, research and analysis.” 


Task force is dissolved when the task is completed or the problem is solved. It is a group of technical experts. It also includes representatives from subunits. Assignment to a task force is likely to be a full-time responsibility. It is generally associated with the co-ordination of activities among work units. It reports directly to top management. 

Task force achieves its goal in one of three ways: 

(a) By making recommendations to the executive. 

(b) By reaching decisions in the group. 

(c) By committing various units to take specific actions in accordance with the group’s decisions. 

Free-Form Organisations: 

These are the naturalistic or organic structures of modern organisations. The free-form design is created to facilitate the management of change. These designs are highly adaptable and flexible. Free-form structures have no one way of organising. Fred Luthans has stated that “Organisations that operate under the free-form concept tailor-make the structure to fit their particular needs at a particular time. Usually, the traditional, departmentalized functional structure is replaced by self-contained profit centers. These organisational units are results- oriented and their members are managed as a team.” 

Basic Types of Organisational Structure of any Company

1. Functional Structure 

2. Divisional Structure 

1. Functional Structure: 

An organizational structure in which activities are grouped and departments are created on the basis of specific functions to be performed is called a functional structure. 

For example all the jobs related to production are grouped under the production department. Sales to sales department etc. 

Advantages of Functional Structure: 

1. Specialisation:

Better division of labour takes place in functional structure which results in specialisation of functions and its consequent benefits. 

2. Effective coordination:

All the persons working within a department are specialists of their respective jobs. It makes the coordination easier at the department level. 

3. Helps in increasing managerial efficiency:

Managers of one department are performing the same type of function again and again which makes them specialised and improves their efficiency. 

4. Minimises cost:

It leads to minimum duplication of effort which results in economies of scale and thus lowers cost. 

5. Makes training easier:

Functional structure makes the training easier as the focus is only on a limited range of skills. 

Disadvantages of Functional Structure: 

1. Less emphasis on organisational objectives:

Each departmental head works according to his own wishes. They always give more weight to their departmental objectives. Hence overall organisation objectives suffer. 

2. Difficulty in inter-departmental coordination:

All departmental heads work as per their own wishes which results in coordination within the department but it makes interdepartmental coordination difficult. 

3. Inter-departmental conflicts:

There is always the possibility of conflicts of interests between departments which adversely affect the achievement of organizational goals. 

4. Hurdle in complete development:

As each employee specializes only in a small part of the whole job, the complete development of employees is not possible in functional structure. 

Suitability of Functional Structure: 

  1. Where the size of the business unit is large. 
  2. Where specialisation is required. 
  3. Where there is mainly only one product sold. 

2. Divisional Organisation Structure: 

An organization structure in which activities are grouped according to the major products manufactured (like metal, plastic, cosmetics etc) is known as divisional organisation structure. 

i. In divisional structure, the organization is divided into separate business units or divisions. 

ii. Each unit has a divisional Manager responsible for the performance of the division and who has the authority over the unit. 

iii. Within each division, the functional structure is adopted. 

Advantages of Divisional Structure: 

1. Quick decision making:

Divisional managers can take any decision regarding his division independently which makes decisions quick and effective. 

2. Divisional results can be assessed:

Divisional results (profit/loss) can be assessed easily. On this basis unprofitable divisions can be closed. 

3. Growth and expansion:

It facilitates growth and expansion as new divisions can be added without disturbing existing departments. 

Disadvantages of Divisional Structure: 

1. Conflicts:

Conflicts among different divisions may arise on allocation of funds and resources. 

2. Duplication of functions:

Entire set of functions is required for all divisions. It gives rise to duplication of efforts among divisions and thereby increases in costs. 

3. Selfish attitude:

Every division tries to display better performance even sometimes at the cost of other divisions. This develops a selfish attitude. 

Suitability of Divisional Structure: 

  1. Where the number of main products are more than one. 
  2. Where the size of the concern is very large. 
  3. Where product specialisation is needed. 

Types of  Organisational Structure with Examples

Organization requires the creation of structural relationships among different departments and the individuals working there for the accomplishment of desired goals. The establishment of formal relationships among the individuals working in the organization is very important to make clear the lines of authority in the organization and to coordinate the efforts of different individuals in an efficient manner. 

In order to organize the efforts of individuals, any of the following types of organization structures may be set up: 

  1. Line organization, 
  2. Line and staff organization, 
  3. Functional organization, 
  4. Committee organization, 
  5. Project organization, and 
  6. Matrix organization. 

The advantages and disadvantages  of line organization, and line and staff organization are discussed as under: 

1. Line Organization: 

The line organization represents the structure in a direct vertical relationship through which authority flows. It is the simplest form of organization structure and is also known as scalar or military organization. Under this, the line of authority flows vertically downward from top to bottom throughout the organization. The quantum of authority is highest at the top and reduces at each successive level down the hierarchy. 

In line organization, the line of authority consists of an uninterrupted series of authority steps and forms a hierarchical arrangement. The line authority not only becomes the avenue of command to operating personnel but also provides the channel of communication, coordination and accountability in enterprise. 

Advantages of Line Organization: 

(i) If facilitates unity of command and thus conforms to the scalar principle of organization. 

(ii) It ensures excellent discipline in the enterprise because every individual knows to whom he is responsible. 

(iii) It facilitates prompt decision-making because there is definite authority at every level. An executive cannot shift his decision-making to others, nor can the blame be shifted. 

(iv) It is very easy to establish line organization and it can be easily understood by the employees. 

(v) There is clear-cut identification of authority and responsibility relationship. Employees are fully aware of the boundaries of their jobs. 

Disadvantages of Line Organization: 

(i) Line organization is not suitable for big organizations because it does not provide specialists in the structure. Many jobs require specialized knowledge to perform them. 

(ii) There is concentration of authority at the top. If the top executives are not capable, the enterprise will not be successful. 

(iii) There is partially no communication from bottom upwards because of concentration of authority at the higher levels. If superiors take a wrong decision, it would be carried out without anybody having the courage to point out its deficiencies. 

(iv) With growth, the line organization makes the superiors too overloaded with work. If the executive tries to keep up with every activity, they are bogged down in myriad details and are unable to pay proper attention to each one. It will hamper their effectiveness. 

In spite of these drawbacks, the line organization structure is very popular particularly in small organizations where there are less number of levels of authority and a small number of people. A modification of this structure is line and staff organization under which specialists are attached to line executives to provide them specialized assistance on matters of great importance to be an enterprise. 

2. Line and Staff Organization:

The line executive is often described as the individual who stands in the primary chain of command and is directly concerned with the accomplishment of primary objectives. Line organization provides decision-making authority to the individuals at the top of the organization structure and a channel for the flow of communication through a scalar chain of authority. 

Line executives are generalists and do not possess specialized knowledge which is a must to tackle complicated problems. With a view to give specialist aid to line executives, staff positions are created throughout the structure. Staff elements bring expert and specialized knowledge to provide advice to line managers so that they may discharge their responsibilities successfully. 

In line and staff organization, the line authority remains the same as it does in the line organization. Authority flows from top to bottom. The main difference is that specialists are attached to line managers to advise them on important matters. These specialists stand ready with their speciality to serve line men as and when their services are called for to collect information and to give help which will enable the line officials to carry out their activities better. 

The staff officers do not have any power of command in the organization as they are employed to provide expert advice to the line officers. Staff means a supporting function intended to help the line manager. In most organizations, the use of staff can be traced to the need for help in handling details, gathering data for decision-making and offering advice on specific managerial problems. Staff investigates and supplies information and recommendations to managers who make decisions. 

Line and staff structure has gained popularity because certain problems of management have become very complex and, in order to deal with them, expert knowledge is necessary which can be provided by the staff officers. 

For example, the personnel department is established as a staff department to advise the line executives on personnel matters. Similarly, finance, law and public relations departments may be set up to advise on problems related to finance and accounting, law and public relations. 

The staff officers do not have any power of command in the organization as they are employed to provide advice to the line officers. In most organizations, the use of staff can be traced to the need for help in handing details, gathering data and offering advice on specific managerial problems. 

Advantages of Line and Staff Organization: 

(i) Better decisions:

Staff specialists help the line executives in making better decisions by providing them with adequate information of the right type at the right moment and expert advice. 

(ii) Flexibility:

Line and staff organization is more flexible as compared to the line organization. General staff can be employed to help line managers at various levels. 

(iii) Proper weightage:

Many problems that are ignored or poorly handled in the line organization can be properly covered in the line and staff organization by the use of staff specialists. 

(iv) Reduction of burden:

Staff specialists relieve the line managers of the botheration of concentrating on specialized functions like accounting, selection and training, public relations, etc. 

(v) Specialized knowledge:

Line managers get the benefit of specialized knowledge of staff specialists at various levels. 

(vi) Unity of command:

Under this system, the experts provide special guidance without giving orders. It is the line manager who only has got the right to give orders. The result is that the enterprise takes advantage of functional organization while maintaining the unity of command, i.e., one subordinate receiving orders from one boss only. 

Disadvantages of Line and Staff Organization: 

Line and staff organization suffers from the following drawbacks: 

(i) Since staff men are not accountable for the results, they may not be performing their duties well. 

(ii) The allocation of duties between the line and staff executives is generally not very clear. This may hamper coordination in the organization. 

(iii) There is generally a conflict between the line and staff executives. There is a danger that the staff may encroach on the line authority. Line managers feel that staff specialists do not always give the right type of advice, and staff officials generally complain that their advice is not properly attended to. 

(iv) There is a wide difference between the orientation of the line and staff men. Line executives’ deals with problems in a more practical manner. But staff officials who are specialists in their fields tend to be more theoretical. 

Superiority of Line and Staff Organization over Line Organization: 

Line and staff organization is considered better than the line organization because of the following reasons: 

(i) Staff makes available expert advice to line executives. This is necessary to deal with complex problems of management. For instance, the personnel department is established as a staff department to advise the top executives and other line executives on personnel matters. 

(ii) Better decisions are ensured in line and staff organization as compared to a simple line organization. 

(iii) Line and staff structure is more suitable for large organizations as expert advice is always available. The line managers can make use of the knowledge of staff specialists to deal with complicated problems. Therefore, line and staff organization is certainly better than line organization.

Organisational Structure and its Types

The different types of organisational structure are:

  1. Functional organisation structure, 
  2. Product organisation structure, 
  3. Geographical organisation structure, 
  4. Decentralised business divisions, 
  5. Strategic business units, 
  6. Matrix organisational structure, 
  7. Team Structure and 
  8. Virtual Structure. 

1. Functional Organisation Structure: 

Functional organisation structure is the most widely used structure. Each functional department consists of those jobs in which employees perform similar jobs at different levels. The commonly used functions are- marketing, finance and accounting, human resources, manufacturing, research and development and engineering. 

Strategic Advantages: 

(i) A functional structure would be effective in single business firms where key activities revolve around well-defined skills and areas of specialisation. 

(ii) In-depth specialisation and focused concentration on performing functional tasks can enhance operating efficiency and the development of core competencies. 

(iii) This type of structure promotes maximum utilisation of up-to-date technical skills and enables the firm to capitalise on specialisation and efficiency. These are strategically important considerations for single business companies, dominant product companies and vertically integrated companies. 

(iv) The functional structure is most appropriate when firms compete on the basis of technical specialisation or efficiency in a relatively stable environment. 

(v) This structure promotes common values and goals among employees of the department, facilitating co-operation and collaboration within the functional department. 

Strategic Disadvantages: 

(i) The horizontal diversification of the business reduces the efficiency of the functional structure. 

(ii) The departmental members may see the activities from the narrow viewpoint of the department rather than the total organisation. This aspect results in absence of inter-departmental coordination and cooperation. 

(iii) Interdepartmental policies further result in conflicts. This situation leads to indecision, delay in decision-making or ineffective decision-making. 

(iv) Further, the narrow specialisations kill the initiative of entrepreneurs and the zeal of innovativeness and creativity. Consequently, the firm may lose sensitiveness to the customer demands, technological changes and environmental demands. These limitations of functional structure may make the firm to reassess the suitability of the structure to the strategy and decide accordingly. 

2. Product Organisation Structure: 

Activities are divided on the basis of individual products, product line, services and are grouped into departments in product organisation structure. All important functions, viz., marketing, production, finance and human resource are contained within each department. 

This type of organisation structure overcomes many of the major limitations of functional organisational structure. 

Strategic Advantages: 

(i) The product organisation structure is more appropriate than the functional form of organisation for firms producing multiple products. 

(ii) Coordination among functional areas like product design, producing, distributing, marketing is effective as all functions are performed in each department. 

(iii) Since each department is independent, most of the decisions can be made at departmental level without involving the top management in this process. It will result in fast decisions, enhancement of organisational competency to compete in a rapidly changing environment. 

(iv) Responsibility and accountability for market share, sales, profit/loss is clearly fixed. Thus, either the credit for the success or blame for the failure of a product can be clearly attributed to a particular department. This advantage cannot be present in the case of functional organisation structure. 

Strategic Disadvantages: 

Product organisational structure is also not free from limitations: 

(i) One of the major limitations is the unnecessary duplication of equipment and personnel among various departments. This results in loss of specialisation. 

(ii) Each department will have production, marketing, human resource, finance managers, secretarial and support staff, computers and testing equipment. As such specialised personnel and equipment cannot be procured. 

(iii) Some decisions like pay, promotion, product quality, design and pricing strategy may be inconsistent between departments. 

(iv) Interdepartmental conflicts arise regarding sharing of common resources, allocation of common and overhead expenses, etc. 

Strategic, Advantages and Disadvantages of Product Organisation Structure: 

Strategic Advantages:   

i. Appropriate for organisations with multiple products.

ii. Improves coordination across functions.

iii. Suited to a more dynamic environment.

iv. Moves decisions close to the problem.

v. Release Managing Director’s time

vi. Clarifies profit/loss accountability.   

Strategic Disadvantages: 

i. Result in inconsistent decisions from one department to another.

ii. Involves difficulty in allocating overheads.

iii. Results in duplication of equipment and personnel.

iv. Encourages dysfunctional competition for resources.

v. Results in loss of specialisation.

vi. Emphasises departmental rather than organisational goals. 

3. Geographical Organisation Structure: 

The activities or functions are grouped into departments based on the activities performed in the geographical areas/regions. Each geographical unit includes all functions required to produce and market the products in a particular geographical area. Multinational organisations, enterprises operating in diverse geographic markets or serving an expansive geographic area are organised based on the geographic structure. This structure is also used by chain stores, power companies, restaurant chains, dairy products, banking companies, insurance companies, etc. 

Strategic Advantages: 

The advantages of this type of organisational structure are: 

(i) Products and services are better designed to the climatic and cultural needs of specific geographical regions. 

(ii) A geographical structure allows a firm to respond to the technical needs of different international areas. 

(iii) Producing and distributing products in different national or global locations may allow the organisation to better serve the consumer needs of various nations. 

(iv) This organisation structure enables a company to adapt to varying legal systems. 

(v) It also allows firms to pinpoint the responsibility for profits or losses. 

Strategic Disadvantages: 

This organisational structure is also not free from limitations. The limitations of this structure are similar to those of product structure. 

(i) Often more functional personnel are required. The firm cannot appoint specialists unlike in functional structure due to duplication of personnel. 

(ii) There would be duplication of equipment and facilities. 

(iii) Coordination of company-wide activities would be difficult. 

(iv) There would be a problem of imposing a degree of uniformity and diversity. 

(v) It is difficult to maintain a consistent company image or reputation. 

(vi) This structure adds another layer of management to run the geographic units. 

Strategic Advantages and Disadvantages of Geographical Organisation Structure: 

Strategic Advantages: 

(i) Allows tailoring of strategy to needs of each geographical market. 

(ii) Delegates profit/loss responsibility to the lowest strategic level. 

(iii) Improves functional coordination within the target market. 

(iv) Takes advantage of economies of local operations. 

(v) Area units make an excellent training ground for higher level general managers. 

(vi) Clarifies profit/loss accountability. 

(vii) Results in good functional co-ordination. 

Strategic Disadvantages: 

(i) Poses a problem of how much geographic uniformity headquarters should impose versus how much geographic diversity should be allowed. 

(ii) Greater difficulty in maintaining consistent company image/reputation from area to area when area managers exercise much strategic freedom. 

(iii) Adds another layer of management to run the geographic units. 

(iv) Can result in duplication of staff services at headquarters and regional levels, creating a relative cost disadvantage. 

(v) Results in inconsistent decisions from one region to another region. 

(vi) Results in duplication of equipment and personnel. 

(vii) Encourages dysfunctional competition for resources. 

(viii) Results in loss of specialisation. 

(ix) Emphasises regional rather than company goals. 

4. Decentralised Business Unit Structure: 

Grouping activities based on product lines has been a trend among diversified companies since 1920. In a diversified firm, the basic organisational building blocks are its business units, each business is operated as a stand-alone profit centre. 

Strategic Advantages: 

Functional structure and geographic structure are standard organisational building blocks in a single business firm. But, in multi-business firms, the businesses are diversified. 

(i) Diversification is generally managed by decentralised decision-making and delegating authority and responsibility to a manager at each business unit. 

(ii) Each business unit should be managed by an entrepreneurially oriented general manager who is delegated with authority to formulate and execute business strategies. 

(iii) Each business unit operates as a stand-alone profit centre. Each business unit is structured on the basis of either functional structure or geographic structure depending upon strategy, key activities and operating requirements. 

Strategic Disadvantages: 

The disadvantages are: 

(i) The major problem of this type of organisation structure is absence of a mechanism for coordinating related activities across business units. 

(ii) General manager in-charge of each business unit functions independently. It makes coordination a complicated task. Therefore, corporate headquarters must devise some internal mechanism for achieving strategic coordination and to capture strategic benefits. 

Coordination can be achieved by developing the corporate R&D department, corporate sales force, and sales force of closely related businesses, merging the order processing and shipping functions of businesses with common customers and consolidating the production of related parts. 

The corporate managers can also build up strategic fit relationships involving skill transfer and technology transfer across business units. Corporate offices can set up inter-business task forces, standing committees, or project teams for the purpose of skills transfer and technology transfer. 

5. Strategic Business Unit Structure: 

A single chief executive cannot control a number of decentralised units of a broadly diversified company. The business can be effectively controlled, if the related businesses are grouped into strategic units and the efficient and senior executive is delegated with the authority and responsibility for its management. 

The senior executive will in turn report the matter to the chief executive. This arrangement will improve strategic planning and implementation, though, it adds one layer in the organisational hierarchy. Top management coordinates the interests of the diversified business units. 

A strategic business unit is a grouping of business subsidiaries based on some important strategic elements common to each. The common or related elements could be an overlapping set of competitors, a closely related strategic mission, a common need to compete globally, an ability to accomplish integrated strategic planning, common key success factors and technologically related growth opportunities. 

Strategic Advantages: 

The advantages of this structure include- 

(i) Reduction of the corporate headquarters’ span of control. The chief executive at the corporate headquarters has to control the general managers of the strategic business units. 

(ii) This structure permits better coordination between divisions with similar missions, products, markets and technologies. 

(iii) It allows strategic management to be done at the most relevant level within the total enterprise. 

(iv) It helps to allocate corporate resources to areas with greatest growth opportunities. 

(v) Business units are organised based on the strategically relevant method. 

Strategic Disadvantages: 

The strategic business unit structure also has certain disadvantages. 

(i) The first disadvantage is that corporate headquarters become more distant from the division. 

(ii) Conflicts between/among the strategic business unit managers for greater share of corporate resources can become dysfunctional. 

(iii) Corporate portfolio analysis becomes complicated in this structure. 

6. Matrix Organisation Structure: 

Organisational structures have possessed a single chain of command. In other words, employees in those structures report to only one manager. But, the organisation structure possesses a dual chain of command. Both functional and project managers exercise authority over organisational activities, in matrix structure. 

Thus personnel in this structure have two superiors viz., a project manager and the manager of the functional department. 

A matrix organisational structure is appropriate when: 

(i) Management attention must be focused on two or more key issues (technical issues, consumer needs, and functional efficiency). 

(ii) Large amounts of diverse information need to be processed. 

(iii) Problem solving is complex (environmental uncertainty, interdependence among organisational units, complex products or technology). 

(iv) Economies of scale require the sharing of human resource expertise to achieve high performance. 

Strategic Advantages: 

The matrix structure is commonly used in firms whose technological change is rapid. 

The advantages of matrix structure include: 

(i) The company can have the advantages of both project type of organisational structure and functional organisation structure. 

(ii) Functional personnel are paid for their services whenever they are used by project managers. This practice enables the management to reduce the cost. 

(iii) This structure has considerable flexibility. The personnel can be transferred from one project to the other depending upon the need of the project. 

(iv) The lower level functional employees are highly motivated and satisfied with their job as they are involved in decision-making. 

(v) Each project manager is in-charge of a unit. Therefore, he can be developed as a general manager through performing general managerial functions. 

Strategic Disadvantages: 

The significant strategic disadvantages of matrix organisational structure include: 

(i) Greater administrative costs associated with its operation. Personnel spend much of their time in meetings and exchanging information to coordinate functional areas with projects. 

(ii) In view of the two forms associated in this structure, they are characterised by conflicts. The most critical conflict is between functional managers and project managers. 

(iii) Functional employees experience stress by working in matrix structure. Reporting to two bosses creates role ambiguity and role conflict. Some companies reverted their organisational structures back to traditional structures from matrix structures due to these problems. 

7. Team Organisation Structure: 

Strategies of business are not always static. They go on changing depending upon internal and external environmental factors. Hence, a single type of organisational structure is not suitable for all situations. 

Blending the basic forms of organisation to match the structure to strategy in the units concerned is essential. Another option is to supplement special situation devices to the basic organisational structure. This option is Team structure. 

Team structure takes three forms, viz.: 

(i) Project Team, 

(ii) Task Force Team, and 

(iii) Venture Team. 

(i) Project Team: 

Project teams are created to handle special kinds of situations with a finite life expectancy. Project teams are self-sufficient work groups. These are created to supervise the completion of a special activity. The special activities include- setting up a new technological process, starting up a new venture, producing a new product, initiating and completion of a joint venture and the like. 

(ii) The Task Force Team: 

Interdisciplinary assignments necessitate the formation of a task force team. A task force team consists of top level executives and specialists in different areas from the organisation. The advantages of a special task force team include- increased opportunity for creativity, open communication, cross-functional authority, and effective integration of talents, quick conflict resolution, and collaborative approach for problem solving. 

(iii) The Venture Team: 

Venture team is a group of individuals. The purpose of forming this team is to bring a specific product or a new business into being. The problems of the venture team are- (a) Difficulty of deciding the manager to whom the report should be made, (b) Source of funding to the venture, i.e., is the source from department or business or corporation (c) problems of coordinating a large number of different ventures. 

8. Virtual Organisational Structure: 

There is a Footwear Company. But it does not produce footwear. Small industries in Kanpur, Kharagpur, TamilNadu, etc., produce shoes for this company. Shoe Design and Quality Company’s executives prescribe the shoe designs, models, specifications, etc., and communicate the same to the small industries through the internet. Shoe Design and Quality Company’s quality control inspectors inspect the quality of the shoes produced by the small industries and certify them. 

This company does not sell the shoes to the customers. But the shoe retailing shops throughout the country sell this company’s shoes. Transport Corporation of India transports the shoes for this company from the manufacturing points to the retailing outlets. Communiq Ads advertises for this company. 

Thus several agencies perform various business functions relating to shoe companies, i.e., design, production, logistics and marketing of sales which are connected through a social network which operate in physically dispersed locations by different electronic devices like phones, mobile phones, internet, etc. This company is called a virtual organization. 

Virtual organisation, according to Biswajeet Pattanayak, is a “social network in which all the horizontal and vertical boundaries are removed. It consists of individuals working out of physically dispersed workspaces, or even individuals working from mobile devices and not tied to any particular workspace. It is an intense coordination structure, consisting primarily of patterns and relationships, and this form needs the communication and information technology to function.” 

Virtual organization is an organization that exists in the minds of stakeholders, as a network or alliances of independent companies that collaboratively pursue a particular business. 

Business Week describes virtual organization as follows: 

i. Technology:

Virtual partnerships are based on electronic networks among independent companies, sometimes located in different places. 

ii. Excellence:

Virtual partnerships draw on the core competencies of each member to create and deliver the best final product and/or service like medical services. 

iii. Opportunism:

Virtual organization is based on opportunities available. Once the opportunities disappear some or all the partners may separate from the network/strategic alliance. 

iv. Trust:

Partner companies of virtual organizations build and maintain networks based on mutual trust and confidence. 

v. No Borders:

Partners of the virtual organization, with their complex network of relationships, make it hard to identify the boundaries among themselves. 

vi. Virtual Workplace:

People/employees of various partners of virtual organizations, sometimes may not have a common workplace. They can work from any place and coordinate their activities through the internet. Telecommuting/tele-work is quite common in virtual organizations. 

Characteristics of Virtual Organisations: 

It includes- 

  1. Flexi-work, Flexi-time and Flexi-work place 
  2. Part-time work 
  3. Job sharing 
  4. Home-based working 
  5. Dependency on information technology like e-mail integration, voice-mail, mobile phone network, computer-telephony integration, etc. 
  6. Loose organizational boundaries 
  7. De-jobbing 
  8. Multi-skilling 
  9. Flexibility in power, work, etc. 
  10. Goal directed 
  11. Customer centred. 

Virtual Organisations and Behavioural Implications: 

Behavioural implications trends in virtual organisations include- 

(i) Organisation’s human resources are the loose web of people; 

(ii) Knowledgeable people are hired for short term projects depending upon market demand; 

(iii) Employees have autonomy at work but are accountable to the targets, performance, etc.; 

(iv) Employees can work from their homes (home-cum-office) or from any other place as such social and work environment do not draw much attention of HR Manager; 

(v) Career planning and development are based on projects; 

(vi) Employees are selected based on not only technical skills but their ability to work in teams; and 

(vii) Emotional and attitudinal quotient (EAQ) is the prime factor in employee selection rather than intelligence quotient (IQ). 

Employees’ features in virtual organisations include: 

i. Self-motivation, adaptability, self-commitment, effective communication, goal/result- orientation, technical competency, multi-skills, etc.; 

ii. Employee performance is managed based on three dimensions viz.- 

(a) Setting performance standards/requirements; 

(b) Facilitating performance by providing required facilities, resources, eliminating obstacles, etc.; 

(c) Encouraging the employees to perform successfully; and 

iii. Create a network of employees and enable them to create and share information and knowledge. 


(i) These structures enable for doing business with less capital, less human resources and other inputs 

(ii) These structure provide for flexibility of operations 

(iii) These structures react to the environment demands most efficiently 

(iv) These structures develop the ancillary industries. 


(i) Companies do not have strong foundations or strengths in their operations, 

(ii) Organisations have to heavily depend on outsourcing, 

(iii) Failure in the network results in the failure of the entire organisation.