In an organizational structure, “chain of command” refers to a company's hierarchy of reporting relationships – from the bottom to the top of an organization, who must answer to whom. The chain of command not only establishes accountability, it lays out a company’s lines of authority and decision-making power. A proper chain of command ensures that every task, job position and department has one person assuming responsibility for performance.
Command Chain Formation
The command chain doesn't happen accidentally. Organizational designers lay it out as the last step in creating an organizational structure. Planners first consider a company’s goals since organizational structure must support strategy. Designers next determine the tasks needed to reach the goals.
Departmentalization follows as designers decide how to group the tasks. Grouping affects resource sharing and the ease with which people communicate and coordinate work. After departmentalizing, designers assign authority for tasks and areas. Once authority is assigned, planners can finally lay out the relationships between positions, thereby creating a chain of command.
Reporting Relationships and Organizational Chart
The reporting relationships established in the final step of organizational design are easy to see on an organizational chart, which depicts a company’s structure. Starting at the bottom, each position is connected to one above it by a line. Following the line vertically from position to position reveals the chain of command. Each person is one link in the chain.
Span of Control
A manager may be linked to many or few subordinates. The number of people reporting to a manager is called a manager’s span of control. Managers with wide spans of control have many subordinates, and it’s not possible for a manager to closely examine activity. Consequently, employees under such managers have more authority to perform their jobs and even make decisions than do employees reporting to managers with narrow spans of control.
Flat Organizational Structures
When a manager has a wide span of control, the organizational chart takes on a horizontal, flattened appearance. Fewer managers are needed in middle management, so the company has less of a power hierarchy. These are characteristics found in organic organizational structures. In organic structures, the chain of command’s importance is de-emphasized, since power is distributed among employees.
The chain may only consist of employees and the owner or employees to a manager to the CEO, making for a very short chain of command. Lacking bureaucracy, flat organizations can readily mobilize to meet market conditions.
Vertical Organizational Structures
Managers closely supervising subordinates can only manage a few. These managers have narrow spans of control. Narrow spans require more managers to make sure all employees are properly supervised. These managers must also be managed closely, given their involvement in details and decision-making.
This results in tall organizations with several layers of middle management. The chain of command is important and is used to exert control from the top. Many rules govern activities. Such structures are rigid and mechanistic, leaving little room for innovation and creativity.
What Is an Organizational Structure?
An organizational structure is a system that outlines how certain activities are directed in order to achieve the goals of an organization. These activities can include rules, roles, and responsibilities.
The organizational structure also determines how information flows between levels within the company. For example, in a centralized structure, decisions flow from the top down, while in a decentralized structure, decision-making power is distributed among various levels of the organization. Having an organizational structure in place allows companies to remain efficient and focused.
Key Takeaways
- An organizational structure outlines how certain activities are directed to achieve the goals of an organization.
- Successful organizational structures define each employee's job and how it fits within the overall system.
- A centralized structure has a defined chain of command, while decentralized structures give almost every employee receiving a high level of personal agency.
- Types of organizational structures include functional, divisional, flatarchy, and matrix structures.
- Senior leaders should consider a variety of factors before deciding which type of organization is best for their business, including the business goals, industry, and culture of the company.
Understanding an Organizational Structure
Businesses of all shapes and sizes use organizational structures heavily. They define a specific hierarchy within an organization. A successful organizational structure defines each employee's job and how it fits within the overall system. Put simply, the organizational structure lays out who does what so the company can meet its objectives.
This structuring provides a company with a visual representation of how it is shaped and how it can best move forward in achieving its goals. Organizational structures are normally illustrated in some sort of chart or diagram like a pyramid, where the most powerful members of the organization sit at the top, while those with the least amount of power are at the bottom.
Not having a formal structure in place may prove difficult for certain organizations. For instance, employees may have difficulty knowing to whom they should report. That can lead to uncertainty as to who is responsible for what in the organization.
Having a structure in place can help with efficiency and provide clarity for everyone at every level. That also means each and every department can be more productive, as they are likely to be more focused on energy and time.
Centralized vs. Decentralized Organizational Structures
An organizational structure is either centralized or decentralized. Traditionally, organizations have been structured with centralized leadership and a defined chain of command. The military is an organization famous for its highly centralized structure, with a long and specific hierarchy of superiors and subordinates. In a centralized organizational system, there are very clear responsibilities for each role, with subordinate roles defaulting to the guidance of their superiors.
There has been a rise in decentralized organizations, as is the case with many technology startups. This allows companies to remain fast, agile, and adaptable, with almost every employee receiving a high level of personal agency. For example, Johnson & Johnson is a company that's known for its decentralized structure.
As a large company with over 200 business units and brands that function in sometimes very different industries, each operates autonomously. Even in decentralized companies, there are still usually built-in hierarchies (such as the chief operating officer operating at a higher level than an entry-level associate). However, teams are empowered to make their own decisions and come to the best conclusion without necessarily getting "approval" from up top.
Types of Organizational Structures
Functional Structure
Four types of common organizational structures are implemented in the real world. The first and most common is a functional structure. This is also referred to as a bureaucratic organizational structure and breaks up a company based on the specialization of its workforce. Most small-to-medium-sized businesses implement a functional structure. Dividing the firm into departments consisting of marketing, sales, and operations is the act of using a bureaucratic organizational structure.
Divisional or Multidivisional Structure
The second type is common among large companies with many business units. Called the divisional or multidivisional (M-Form) structure, a company that uses this method structures its leadership team based on the products, projects, or subsidiaries they operate. A good example of this structure is Johnson & Johnson. With thousands of products and lines of business, the company structures itself so each business unit operates as its own company with its own president.
Divisions may also be designated geographically in addition to specialization. For instance, a global corporation may have a North American Division and a European Division.
Team-Based
Similar to divisional or functional structures, team-based organizations segregate into close-knit teams of employees that serve particular goals and functions, but where each team is a unit that contains both leaders and workers.
Flat (Flatarchy) Structure
Flatarchy, also known as a horizontal structure, is relatively newer, and is used among many startups. As the name alludes, it flattens the hierarchy and chain of command and gives its employees a lot of autonomy. Companies that use this type of structure have a high speed of implementation.
Matrix Structure
Firms can also have a matrix structure. It is also the most confusing and the least used. This structure matrixes employees across different superiors, divisions, or departments. An employee working for a matrixed company, for example, may have duties in both sales and customer service.
Circular Structure
Circular structures are hierarchical, but they are said to be circular as it places higher-level employees and managers at the center of the organization with concentric rings expanding outward, which contain lower-level employees and staff. This way of organizing is intended to encourage open communication and collaboration among the different ranks.
Network Structure
The network structure organizes contractors and third-party vendors to carry out certain key functions. It features a relatively small headquarters with geographically-dispersed satellite offices, along with key functions outsourced to other firms and consultants.
Benefits of Organizational Structures
Putting an organizational structure in place can be very beneficial to a company. The structure not only defines a company's hierarchy but also allows the firm to lay out the pay structure for its employees. By putting the organizational structure in place, the firm can decide salary grades and ranges for each position.
The structure also makes operations more efficient and much more effective. By separating employees and functions into different departments, the company can perform different operations at once seamlessly.
In addition, a very clear organizational structure informs employees on how best to get their jobs done. For example, in a hierarchical organization, employees will have to work harder at buying favor or courting those with decision-making power. In a decentralized organization, employees must take on more initiative and bring creative problem solving to the table. This can also help set expectations for how employees can track their own growth within a company and emphasize a certain set of skills—as well as for potential employees to gauge if such a company would be a good fit with their own interests and work styles.
What Are Some Types of Organizational Structures?
The four types of organizational structures are functional, multi-divisional, flat, and matrix structures. Others include circular, team-based, and network structures.
What Are the Key Elements of an Organizational Structure?
Key elements of an organizational structure include how certain activities are directed in order to achieve the goals of an organization, such as rules, roles, responsibilities, and how information flows between levels within the company.
What Is an Organizational Structure Example?
An example of an organizational structure is a decentralized structure, which gives individuals and teams high degrees of autonomy without needing a core team to regularly approve business decisions. A good example of this decentralized structure is Johnson & Johnson. With thousands of products and lines of business, the company structures itself so each business unit operates as its own company with its own president.
What Is an Organizational Structure Chart?
Organizational structures are normally illustrated in some sort of chart or diagram like a pyramid, where the most powerful members of the organization sit at the top, while those with the least amount of power are at the bottom.
What Is the Best Organizational Structure?
There is no one best organizational structure, as it depends on the nature of the company and the industry it operates in.
The Bottom Line
There are entire fields of study based on how to optimize and best structure organizations to be the most effective and productive. Senior leaders should consider a variety of factors before deciding which type of organization is best for their business, including the business goals, industry, and culture of the company.