In today’s world, new organizational structures are emerging under conditions of (1) increasing environmental uncertainty, (2) greater use of sophisticated technological production methods and information systems, (3) the increasing size and scope of worldwide business corporations, (4) a greater emphasis on multi-industry competitive strategy, and (5) a more educated generation of managers and employees.
A new strategy may require more flexible characteristics than the traditional functional or divisional structure can offer.
New organizational structures greatly emphasize collaboration over competition in the management of multiple overlapping projects and developing businesses. This stage of structure development not only emphasizes horizontal over vertical connections between people and groups but also organizes work around projects in which information systems can support collaborative activities.
Strategic Business Unit (SBU) Structure
What is a Strategic Business Unit Structure?
The strategic business unit (SBU) has emerged as an evolved version of a divisional structure, to better reflect product-market considerations. This SBU structure groups similar divisions into strategic business units and delegates authority and responsibility for each unit to a senior executive who reports directly to the chief executive officer.
As the number, size, and diversity of divisions in an organization increase, controlling and evaluating divisional operations become increasingly difficult for management. The span of control becomes too large at the top levels of the firm.
Thus, firms have to abandon divisional structures and move to strategic business unit structures.
In this form, headquarters attempt to coordinate the activities of its SBUs through performance-oriented and results-oriented control and reporting system. The strategic business units are held responsible for their own performance results.
Advantages and Disadvantages of a SBU Structure
One of the main advantages of this structure is that it can facilitate strategy implementation by improving coordination between similar divisions and channeling accountability to distinct strategic business units.
Another advantage of this structure is that it makes the tasks of planning and controlling by the corporate office much more manageable.
Two disadvantages of this structure are that it (1) requires an additional layer of management which in turn increases costs, (2) makes the role of group vice president somewhat ambiguous.
Matrix Structure
What is a Matrix Structure?
In matrix structures, functional and product forms are combined simultaneously at the same level of organization.
A matrix structure depends upon both vertical and horizontal flows of authority and communication (hence the term matrix). In contrast, functional and divisional structures depend primarily on vertical flows of authority and communication.
The matrix structure is often found in an organization or SBU when the following 3 conditions exist: (1) ideas need to be cross-fertilized across projects or products, (2) resources are scarce, and (3) abilities to process information and to make decisions need to be improved.
The matrix structure is being used because firms are pursuing strategies that add new products, customer groups, and technology to their range of activities. Out of these changes are coming product managers, functional managers, and geographic-area managers, all of whom have important strategic responsibilities.
Thus, when several variables, such as product, customer, technology, geography, functional area, and line of business, have roughly equal strategic priorities, a matrix organization can be an effective structural form.
In a matrix organization, employees now have two superiors, a product or product manager, and a functional manager.
The home department of employees is usually functional and is reasonably permanent. These employees are then assigned temporarily to one or more product units or projects. The product units or projects are usually temporary and act like divisions.
For a matrix structure to be effective, organizations need participative planning, training, a clear mutual understanding of roles and responsibilities, excellent internal communication, and mutual trust and confidence.
Despite its complexity, the matrix structure is widely used in many industries, including construction, health care, research, and defense.
Note that not every organization is a good candidate to use a matrix structure.
Organizations such as engineering and consulting firms that need to maximize their flexibility to service projects of limited duration can benefit from the use of a matrix.
Matrix structures are also used to organize research and development departments within many large corporations. In each of these settings, the benefits of organizing around teams are so great that they often outweigh the risks of doing so.
Advantages of a Matrix Structure
One major advantage of a matrix structure is that it facilitates the use of specialized personnel, equipment, and facilities.
Functional resources are shared in a matrix structure, rather than duplicated as in a divisional structure. Individuals with a high degree of expertise can divide their time as needed among projects, and they, in turn, develop their own skills and competencies more than in other structures.
Another major advantage of a matrix structure is that it relies heavily on horizontal relationships, unlike functional or divisional structures where vertical linkages between bosses and subordinates are the most elements.
This advantage, in turn, maximizes the organization’s flexibility, enhancing communication across functional lines, and creating a spirit of teamwork and collaboration.
The third advantage of the matrix structure is that it can help develop new managers.
In particular, a person without managerial experience can be put in charge of a relatively small project as a test to see whether the person has a talent for leading others.
Disadvantages of a Matrix Structure
A disadvantage of a matrix structure is that it may contribute to the overall complexity of the organization.
This includes dual lines of budget authority, dual sources of reward and punishment, shared authority, dual reporting channels, and a need for an extensive and effective communication system.
Another disadvantage of a matrix structure is that it violates the unity of command principle because each employee is assigned, multiple bosses.
Specifically, any given individual reports to a functional area supervisor as well as one or more project supervisors. This creates confusion for employees because they are left unsure about who should be giving them direction.
Violating the unity of command principle also creates opportunities for unsavory employees to avoid responsibilities by claiming to each supervisor that a different supervisor is currently depending on their efforts.
Another disadvantage of a matrix structure is the potential for conflicts between project managers, or between project and product managers.
In reality of any organization, some workers are more talented and motivated than others. Within a matrix structure, each project/product manager naturally will want the best people assigned to her project because their boss evaluates these managers based on how well their projects perform. Because the best people are a scarce resource, infighting and politics can flare-up. Thus, the battle between project/product managers can happen at any time.
Development Phases of a Matrix Structure
In developing the matrix structure, the organization may go through 3 distinct phases.
Phase 1: temporary cross-functional task forces
A new product line is being introduced and a project manager is likely in charge as the key horizontal link.
Phase 2: product/brand management
When cross-functional task forces become more permanent, the project manager becomes a product or brand manager and with this, the second phase begins.
The function is still the primary organizational structure, but the product or brand managers act as the integrators of semi-permanent products or brands.
Phase 3: mature matrix
This phase involves a true dual-authority structure. Both the functional and product structures are permanent. All employees are connected to both a vertical functional superior and a horizontal product manager.
Functional and product managers have equal authority and must work together to resolve disagreements over resources and priorities.
Network Structure (Virtual Organization)
What is a Network Structure?
In its ultimate form, a network organization is a series of independent firms or business units linked together by computers in an information system that designs, produces, and markets a product or service.
Network structure can be considered non-structure because of its virtual elimination of in-house business functions with many outsourced activities.
A corporation organized in this matter is often called a virtual organization because it is composed of a series of project groups or collaborations linked by constantly changing nonhierarchical networks.
Entrepreneurial ventures often start out as network organizations. Large companies use the network structure in their operations by outsourcing manufacturing to other companies in low-cost locations around the world.
Rather than being located in a single building or area, the functions are scattered worldwide. The organization is only a shell with a small headquarters acting as a broker, connected to some completely owned divisions, partially-owned subsidiaries, or other independent companies.
The network structure becomes most useful when the environment of a firm is unstable and is expected to remain so. There is usually a strong need for innovation and quick response, so the company may contract with people for a specific project or length of time. Long-term contracts with suppliers and distributors replace services that the company could provide for itself through vertical integration.
Advantages of Network Structure
Network organizational structure provides an organization with increased flexibility and adaptability to cope with rapid technological change and shifting patterns of trade and competition.
It allows a company to concentrate on its distinctive competencies while gathering efficiencies from other firms that are concentrating their efforts in their areas of expertise.
Disadvantages of Network Structure
Network structure can sometimes be viewed as only a transitional structure because it is unstable and subject to tensions.
The availability of numerous potential partners can be a source of trouble. Contracting out individual activities to separate suppliers and distributors may keep the firms from discovering their core competencies and internal synergies by combining these activities.
Cellular (Modular) Structure
What is a Cellular Structure?
Decades of the evolution of organizational forms are leading to the cellular structure. A cellular organization is composed of cells, that are self-managing teams, or autonomous business units.
These cells can operate alone but can also interact with other cells to produce a more potent and competent business mechanism.
This structure emerges under the pressure of a continuous process of innovation in all industries. Each cell has an entrepreneurial responsibility to the larger organization.
This structure is used when it is possible to break up a company product into self-contained modules or cells, and then interfaces can be specified when the cells are joined together.
This combination of independence and interdependence allows this organizational form to generate and share knowledge and expertise needed to produce continuous innovation. Beyond knowledge creation and sharing, this form adds value by keeping the organization’s total knowledge more fully than any other type of structure.
Resources
Further Reading
- Types of Organizational Designs (emaytrix.com)
- Contemporary Forms of Organizational Structures (open.lib.umn.edu)
- Modern Organization Structure (smallbusiness.chron.com)
- Forms of Organizational Structure (yourbusiness.azcentral.com)
- Types of Business Organizational Structures (pingboard.com)
- Contemporary Forms of Organizational Design (mbaknol.com)
- The Modern Organization – Their differences, their development and their management (grin.com)
- Best Organizational Structure Examples (tallyfy.com)
Even More Reading
- Traditional vs Modern Organizational Structures (jimpmartens.blogspot.com)
- Traditional vs Modern organizations (nl.devoteam.com)
Related Concepts
- Organizational Structure in Strategy Implementation
- Building Blocks of Organizational Structure
- Fundamental Forms of Organizational Structure
- Divisional Structure of Organization
References
- Hitt, M. A., Ireland, D. R., & Hoskisson, R. E. (2016). Strategic Management: Concepts: Competitiveness and Globalization (12th ed.). Cengage Learning.
- Hitt, M. A., Ireland, D. R., & Hoskisson, R. E. (2019). Strategic Management: Concepts and Cases: Competitiveness and Globalization (MindTap Course List) (13th ed.). Cengage Learning.