Types Of Business

When any organizational entity expands beyond 21 members, the real power will be in some smaller body.

Despite being considered a rather dry topic, organisational structure is a crucial issue. If employees do not quite know what they are expected to do and who reports to whom, or if it takes too long to get the information they need because of the overly complicated company hierarchy and poor communication between departments, feelings of frustration and de-motivation may arise. Findings by different consultancy companies show that poor business performance is directly related to organisational problems.

Organisations are structured in a variety of ways, dependant on their objectives. Let us look at an imaginary multinational company named Jet, which operates in electronics. It can be structured in several different ways:

1. by function – the business is arranged according to what each section or department does (e.g. Production, Sales, Marketing, Accounts, IT, etc.)

2. by product or activity (e.g. Jet Business Electronics, Jet Consumer Electronics, Jet Domestic Appliances and Personal Care, etc.)

3. by area – geographical or regional structure (e.g. Jet Americas, Jet Europe, Middle East and Africa, and Jet Asia Pacific, etc.)

A matrix structure is yet another type of organisational structure, which combines two organisational forms in order to leverage the benefits of both. Some global corporations adopt a matrix structure that combines geographical with product divisions, allowing the company to exploit global economies of scale while better serving local needs. Instead of combining two divisional structures, some matrix structures integrate a functional structure with project teams. Employees are assigned to a cross-functional project team, but they also belong to a permanent functional unit (e.g. sales, marketing) to which they return when a project is completed.

Some specialists, such as Lowell Bryan and Claudia Joyce of McKinsey’s New York office, argue that vertical hierarchical structures hinder professionals (whom they define as innovators of new business ideas who make big companies competitive) to search across poorly connected organisational silos to find knowledge and collaborators, while matrix overlays often burden them with two bosses. They propose a new organisational model that includes flattening vertical structures by establishing one dominant form of management – product, functional, geographic or some other – and simplifying the matrix approach that often muddles decision-making authority.

Most organisations look like this:

In hierarchical organisations such as the one presented above, responsibility is passed down the line. At each stage in the chain, one person has a number of direct reports who are within their span of control. In tall hierarchical organisations with many levels of management, the number of layers decreases the span of control. In contrast to a tall organisation, a flat hierarchical organisation has only a few or just one layer of management. In the 20th century, as companies grew bigger, tall hierarchical organisations were popular because they could ensure control. However, with the rise of globalisation and widespread use of technology, they began to decline in the 1990s. This is where various consultancy companies entered the scene, cashing in millions of kunas, euros or pounds for advice on how to re-organise a company.