What is an organisational structure: A simple explanation
The organisational structure is important for companies because it defines the formal ‘reporting lines’. For employees, the organisational chart shows where they are in the organisation.
The organisational structure also shows which issues and which functions are important for companies. Companies in the same sector are sometimes organised very differently.
But do not overestimate the importance of the organisational structure in relation to how your company works. The organisational structure should always support the processes. The processes show how work is done, who works with whom and how information and materials are exchanged at interfaces. The processes are the important levers in companies.
If you derive the organisational structure coherently from the processes, it can be an asset to your company. But if you try to create a clear organisational structure first and only then turn to the processes or define the organisation “around people”, conflict is pre-programmed.
What are the organizational structures? The different forms of companies
Which form of organizational structure is suitable for your company? Each form has its own advantages and disadvantages. The organizational structure must fit your company, i.e. your processes, your locations and your markets.
The line organization
For organizations that work in environments of low complexity and maintain only one location, a hierarchical organizational structure, the line organization, is usually well suited when the focus is predominantly on efficient implementation of predefined work steps. A line organization is clear and straightforward.
The matrix organization
For groups of companies with multiple locations, a function-oriented organizational structure, the matrix organization, can be useful.
The process-oriented organization
In addition to the line and matrix organization, there is the option of a team-based, flat organizational structure, the process-oriented organization.
Choosing the right organizational structure
In complex environments, organizational forms that promote self-regulation are more likely to meet the requirements. This is because they naturally ensure that the interests of all involved stakeholders are taken into account in a balanced way directly at the grassroots level, because this is where they come together out of their own motivation to achieve something together. The contribution principle applies, which is borne out of the incentive to expect more benefit from the subsequent distribution of the value of the jointly created output than contributions have to be made for it beforehand.
Both the project organization and the fractal organization derive their particular value creation strength from the opportunities arising from diversity, from the high level of self-motivation of the participants, from the high level of decision-making authority on site, and from the flexibility in the composition of teams and in decision-making ? with comparatively low transaction costs, because controls and reporting paths are largely eliminated. The high development and adaptability beats a hierarchically structured and centrally controlled organization.
Example: A plant manufacturer operates a classic project business. Customer orders are projects. Projects are also handled in product development. On the other hand, all operational functions are available at his location that can be provided in a line organisation. In such cases, a line organisation is generally a good idea, supplemented by organised project teams.
Avoid, however, that capable line staff are additionally heavily challenged in projects and vice versa. Many committed and motivated employees are overburdened by such constructs and may even drop out.
Many of the organisations that exist today, especially in small and medium-sized enterprises, still come from the era of owner-managed small businesses; on the other hand, there are former group companies that have uncritically retained the learned group structure, even though it is not suited either by the task at hand or by the size of the company or the profit situation.
Example 1: An owner-managed, medium-sized metalworking company has more than 50 employees and is still organised as follows: The owner is in personal union the managing director, the sales manager, the sales representative for key accounts: The production manager, has materials management and warehousing under him, supervises shipping and deliveries, carries out necessary maintenance work on machines and equipment and is also one of the most important know-how carriers in the company. There is one employee in the office and an external accountant; the rest of the employees make parts according to instructions and drawings.
Example 2: A former production branch spun off from a traditional German company with a total of 300 employees had a managing director and assistant, five directors each with an assistant, and each of these up to eight main department heads, who usually had at least two department heads under them, who then had first foremen and shift foremen with the corresponding deputies.
Within the framework of a reorganisation carried out under the new group management, some employees took over the tasks of up to 10 former colleagues.
Are you sure that you have built up an organization – away from the extremes outlined above – that really suits your company, its tasks and the competitive and market situation? In addition to a classic line organization, you have a matrix organization, a process-oriented organization, a project organization, a fractal organization and mixed forms of organization at your disposal.