Simple Structures are more common in small organizations where is there is one central authority figure, usually a business owner, who tends to make the decisions. For example, the owner of a small clothing store might have to manage a cashier and salespeople. Because there are no layers of management, decisions can be made and implemented quickly. However, this structure has its drawbacks. The business owner may become overloaded with work or may be reluctant to delegate when necessary, which could slow down the progress of the organization.

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Functional Structures group employees according to the tasks they perform for the organization, such as marketing, finance, and human resources. Here employees are managed by means of clear levels of authority. In general, this structure works well for smaller organizations, but there is a risk of lack of communication between the different departments because of their tendency to work separately from each other. Yolande shows that the Frankfurt branch of Pioneering Health operates partly as a functional structure.

The Divisional Structure – sometimes called multidivisional structure – groups employees by products and services, by geographic regions, or by customers. While divisional structures are ideally placed to meet external demands, divisions that are performing similar tasks – in different locations, for example – may be at risk of duplicating their work. They may also compete for shared resources.

Yolande has proposed a matrix structure for Pioneering Health’s Frankfurt office, which is an organizational structure that combines both functional and divisional departmentalization, with dual lines of authority. The group looks at the figure trying to absorb what it means to each of them.

How do organizations choose the right structure for their firms? Most companies, large or small, will go through a period of organizational design, which is the process of creating or changing the structure of an organization to integrate people, information, and technology. The choice of structure depends on the organization’s size, strategy, and environment. The organizational design process often arises from a changing business climateSetting the scene entails establishing the rationale for the change and making a rough plan. The data gathering process begins. During this stage, the team assesses the existing structure and looks for ways to mold it into the new design. Once the design team is confident the new structure is feasible, the design transformation stage begins. During this stage, the team drafts an image of the new organizational structure which outlines the interconnections between different roles and departments. Implementing the design entails putting the design into action, meaning employees may be following new reporting lines or communicating with new or different divisions. Post implementation, it is vital to have a design evaluation process, to ensure the new structure is functioning well. This requires assessing the performance of employees and their level of satisfaction with the new structure.

Unit Learning Outcomes

ULO 1: Compare the differences between the four organizational structures correct structures are determined. (CLO 1 & 5)
ULO 2: Examine how organization create and change organizational design. (CLO 2, 3 & 5)
ULO 3: Examine the how employees, information, and technology are integrated into the organization structure (CLO 5)

Discussion Questions

Read the following article to answer the discussion questions (link below).

Foss, N. J., Lyngsie, J., & Zahra, S. A. (2015). Organizational design correlates of entrepreneurship: The roles of decentralization and formalization for opportunity discovery and realization. Strategic Organization, 13(1), 32-60.

“Organizational design correlates of entrepreneurship: The roles of decentralization and formalization for opportunity discovery and realization” (Links to an external site.)

  1. In our opinion, which is more important for opportunity discovery and realization…formalization or decentralization? Defend your answer.
  2. Based on your reading of the article, if you wanted to encourage entrepreneurship in your organization, what type of organizational design would you implement? How would you go about implementing your design?

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