After reading this article you will learn about the classical and contemporary organisational formats.

Classical Organisational Formats:

These formats view organisation “as a process of construction in which a great number of small work units are built into jobs, departments, divisions and finally a whole institution.” — Keith Davis

These formats group activities into smaller units and create departments. Organisation structures are planned prior to appointment of people. Interaction amongst people and their social needs are not greatly emphasized in these formats. Popular forms of classical formats are line organisation, line and staff organisation and functional organisation.

These organisational formats are explained below:

I. Line Organisation


In line organisation, decision-making power vests with top managers. They have the ultimate responsibility for attainment of organisational goals. Decisions are taken by superiors and communicated to subordinates who further communicate them to their subordinates. In this way, information flows from top to bottom in a line.

This gives rise to line authority. The line authority is also known as direct operative authority; it is the right of superiors to exercise authority over subordinates. Military organisation is a typical example of line authority where a single head commands and issues orders. Managers in line authority are known as line managers. They respect the scalar chain. The authority, orders, commands and instructions flow from top to bottom in a line and responsibility flows from bottom to top in a line.

“The clearer the line of authority, from the ultimate management position in an enterprise to every subordinate position, the clearer will be the responsibility for decision-making and more effective will be the organisation communication.”


Flow of authority in a line is depicted as follows:

Flow of Authority

Activities covered under line management vary with the nature of organisation. For a manufacturing company, the production, finance and sales departments form line departments, and purchase, personnel, R&D and legal functions constitute the staff departments.

In a legal consultancy firm or a Research and Development organisation, the legal functions and R & D departments from the line departments. Also, while production department is a line department for manufacturing organisation, purchase and accounts department form line departments for production department.

The line organisation chart for a manufacturing company appears as follows:

Line Form of Organisation

Features of Line Organisation:

Line organisation has the following features:

1. Line authority:

Authority flows in line from top to bottom. Every superior has direct authority over subordinates who, in turn, have authority over their immediate subordinates.


2. Scalar chain:

Every superior delegates work to his subordinate and gives him authority to exercise that work. The subordinate accepts the delegated task and delegates it further to his subordinates. This forms the scalar chain.

3. Communication:

The orders and commands flow from top to bottom and responsibilities, suggestions and complaints flow from bottom to top. Every superior and subordinate are connected through formal chain of communication.


4. Responsibility and accountability:

Every individual in the hierarchy has clearly defined responsibility and accountability for the work delegated to him. The accountability and responsibility is unitary since two or more persons cannot be jointly held accountable for the same task. This structure limits the area of action for each position and position holder.

5. Independent relationships:

People of different functional areas at the same level are independent of each other. They report to immediate superiors of their department in a hierarchy. All departmental heads are ultimately responsible for departmental results and finally report to the chief executive of the organisation.


6. Suitability:

This form of organisation is suitable for small-sized undertakings. As the organisation grows in size, its operations become complex and it becomes necessary to appoint specialists to assist the line managers.

Merits of Line Organisation:

This form of organisation has the following merits:


1. Simple:

This is a simple form of organisation. Every person knows his boss and subordinates. It clearly defines a person’s area of discretion. He knows clearly his responsibilities and the superior to whom he is accountable regarding orders and instruction received from him.

2. Attainment of objectives:

Since the structure focuses on tasks to be performed, the objectives are achieved efficiently. Jobs and relationships are task-oriented with very little or no focus on people and social interactions. Orders, instructions, work groups, responsibilities, accountability – all relate to objectives and their optimum achievement.

3. Economical:

Particularly for small-sized organisations, this is an economical form of structure as staff specialists are not appointed and everyone focuses on how best they can contribute towards organisational objectives.


4. Order:

Clearly defined authority and responsibility enable every person to carry out his/ her part of the task in a disciplined and orderly manner. Unity of command and direction promote discipline in the organisation. Immediate superior has control over immediate subordinate which helps in maintaining order/discipline in the organisation.

5. Control:

Every superior maintains direct contact with subordinates and can, therefore, exercise control over their activities. Control is maintained by a single superior.

6. Speed:

The work is accomplished fast because of one-to-one relationship between the superior and the subordinate. Most of the decisions are taken by superiors. Staff and expert advice is usually not sought for. This makes the decision-making process less time-consuming.


7. Clarity:

There is clear division of authority, responsibility and accountability to maintain order and discipline in the organisation. This enables the work to be performed effectively.

8. Development of managers:

Since decisions are made by managers without the assistance of staff specialists, it increases their decision-making abilities and develops their potential to take independent decisions. Managers discuss the problem-solving situations themselves and arrive at practical/optimum decisions. This results in their development and also development of the organisation they are managing.

9. Effective communication:

Communication flows in line both upwards and downwards. Links are not by-passed in the scalar chain. This reduces the chances of information filtration and information remains authentic. This also avoids spreading of rumours and results in effective communication.


Limitations of Line Organisation:

The limitations of line form of organisation are as follows:

1. Inflexible:

The emphasis is on hierarchical relationships between the superiors and subordinates and relationship with the external environment is not taken into consideration. This makes it an inflexible form of organisation structure with respect to social interactions and expert assistance of staff, if required.

2. Ignores social values:

The emphasis is only on work-related activities. Informal interaction amongst people (vertical and horizontal) is neglected in this approach. Influence of peer group affecting the nature of work at every level is ignored in this form of organisation. Though line organisation focuses on hierarchical relationships, social values are important complement to formal relationships to achieve organisational objectives.


3. Concentration of authority at the top:

Since there is concentration of authority at the top, if top managers do not efficiently manage the organisational activities, they will not be able to achieve the business objectives. Higher authorities also demand obedience to orders which primarily results in one-way downward communication.

Subordinates lose initiative to offer constructive and initiative suggestions upwards as the required environment for it is missing. The subordinates, thus, perform only activities assigned to them and do not learn new methods of work.

4. Lack of expert advice:

The specialised services of experts from inside and outside the organisation are not available. Top managers take all the decisions, whether strategic or operational. Even if there is a problem, managers take collective decisions to deal with that situation, without resorting to expert advice.

5. Overburden:


Since top executives deal with every business activity, they are overburdened with work. They do not spend as much time on strategic matters, as they should spend. Sometimes, they are so busy looking after routine organisational matters that they cannot concentrate on important matters. This can affect organisational efficiency if the organisations are large in size. That is why, line structure is suitable for small organisations.

6. Lack of commitment:

When subordinates work strictly according to instructions of the top managers without using their creative and initiative abilities; they may become non- committed to work. People like to work in an environment of cordiality and mutuality rather than orders and instructions.

7. Lack of motivation towards group effort:

Since people hold personal accountability for the work assigned, they do not indulge into group discussions and participative decision-making. The focus is only on vertical relationships and not lateral relationships. Lateral or horizontal relationships are important to promote coordination amongst activities of different departments. Thus, line organisation focuses more on vertical coordination than horizontal coordination.

8. Lack of specialisation:

As managers perform a wide variety of functions, they do not perform specialised tasks. Whether related or not, all organisational matters are managed by the top managers. Modern organisations operate in the competitive environment where specialised activities lead to growth and diversification. Business environment is specialised. Every organisation, functional area and level performs specialised tasks. In the absence of specialisation, business decisions may not be as effective as they could be otherwise.

9. Coordination:

Absence of horizontal relationships, open communication and participative decision-making make coordination difficult in line form of organisation.


This form of organisation is suitable for small scale organisations where nature of work is simple, number of levels and subordinates is less, specialised services are not required, communication is vertical, control is direct, managers perform routine and strategic affairs independently and, therefore, control can be centralised at the top.

II. Line and Staff Organisation:

Organisation which has both line and staff positions or authority is called line and staff organisation. While line authority gets the work done by exercising direct authority, staff authority assists the line positions in doing their work. Thus, line authority is directly related to getting the work done and staff is indirectly related to it.

Line and staff positions:

Line position is enjoyed by virtue of position in the organisational hierarchy and staff position is enjoyed by virtue of specialised knowledge and skills to deal with specific problem areas. Line manager is responsible for attainment of organisational goals through co-ordination of individual and organisational activities.

In a small and simple group of people (organisations), one person can achieve this objective but in large organizations, the complexities and problems increase and, therefore, one person cannot take the responsibility of achieving the goals alone. In fact, he does not even have the skills to solve problems of all the functional areas.

He is constrained by capabilities and knowledge to deal with different functional areas. He, therefore, seeks the expert advice of specialists. People who provide specialised assistance or advice to line managers are called the staff. The primary purpose of staff positions is to provide specialised knowledge to line positions. The person who holds the staff position is called a ‘staff executive’.

Line managers exercise direct authority over subordinates and staff authority is auxiliary, advisory or supportive in nature which helps line managers concentrate on important and strategic organisational matters, besides smoothly carrying out the line activities.

However, staff specialists have line authority over people of their departments. Staff can recommend the line managers but they cannot enforce their recommendations over line managers. Staff services can be provided to a particular position, department or the entire organisation.

Differences between line and staff authority are as follows:

In the organisation chart, line authority is shown by simple lines and staff authority is shown by broken lines:

Line and Staff Organisation

Features of Line and Staff Organisation:

Line and staff organisation has the following features:

1. Line authority achieves the major organisational goals and staff authority assists the line authority in achieving these goals. Staff specialists perform specialised task of decision-making and provide expert advice on various managerial problems.

2. Staff has specialised knowledge in their fields and make recommendations to line managers when they feel necessary to do so.

3. Line managers may or may not accept the staff advise unless otherwise directed to do so by the top managers. Staff advice is only recommendatory in nature.

4. Line and staff are not formally related to each other through authority-responsibility relationships. Line managers seek staff advice which they may or may not follow. Staff cannot insist on the same.

Merits of line and Staff Organisation:

This form of organisation has the following merits:

1. Reduction in workload:

Line executives do not have to deal with every organisational matter. Through the assistance of staff, they can concentrate on important and strategic issues. Line and staff, being part of the same organisation, this promotes overall organisational efficiency.

2. Analysis of the problem:

If line managers need help to fully comprehend the problem, staff specialists assist them. They help to identify the problem, gather information to arrive at alternative solutions and select the best solution to the problem. The line executives are, thus, relieved of carrying out the detailed problem-solving analysis.

Staff managers take multi­dimensional view of the problem and relate it not only to the problem area but the organisation as a whole. At the same time, it develops the decision-making abilities and analytical skills of line managers as they observe staff specialists dealing with problem-solving situations.

3. Quick and better decisions:

Since all organisational decisions cannot be taken by line managers alone (because of physical and mental limitations), staff specialists help in taking quick and better decisions by providing them skilled and specialised advice whenever required. Staff personnel are experts in their area of specialisation and give enough thought and consideration to the problem and the decision.

4. Reservation of authority:

Though line managers can have the expert assistance from staff managers, they get those decisions implemented through their subordinates. The authority is, thus, retained by line managers though assistance from staff specialists is taken whenever necessary.

5. Increase in competence of staff:

Offering suggestions to deal with new and complex problems develops the staff specialists. Staff personnel focus on their discipline which promotes opportunities for growth in that area and increases their efficiency. Increased competence provides prospects for personal development which is conducive to organisational growth.

6. Specialisation:

Both line and staff concentrate on specialised activities and, thus, promote creative thinking for generating new ideas for organisational growth. While the line executives contribute directly to operations of their departments and organisational goals, staff specialists help line executives in achieving their goals.

Limitations of Line and Staff Organisation:

The line and staff organisation suffers from the following limitations:

1. Complexity:

Line and staff relationships are not clear. There is no clear line of demarcation between line and staff authority. Their area of discretion is not very well defined. They often tend to encroach upon each others’ area of operation, This creates confusion in the organisation.

2. Line and staff conflict:

Though staff is an advisory body that assists line managers in performing their work efficiently, there may arise conflict between the two due to difference in approach that line and staff have towards the organisational problems. Sometimes, personal conflicts also result in organisational conflicts resulting into organisational inefficiency.

3. Coordination:

Lack of clarity in duties of line and staff managers and conflict between them creates problems of coordination between the line and staff activities. This affects effective attainment of organisational goals.

4. Suitability:

Appointment of staff executives is costly. This form of organisation is, therefore, unsuitable for small-sized firms.

5. Frustration:

The ‘staff experts’ is only a recommendatory body whose advise may or may not be accepted by the line executives. This can become a source of frustration for the staff specialists.

6. Centralisation:

Since ultimate decision-making authority vests with line managers, the organisations tend to be more centralised. This restricts creativity of lower-level managers and supervisors.


This form of organisation is costly and, thus, suitable for large-scale organisations where complex and specialised activities require expert advice of specialists. It provides specialised advice to line managers without violating line authority over people of their departments. Its success, however, depends upon inter-personal relations and harmony between line and staff specialists. The line and staff experts should coordinate and cooperate with each other.

III. Functional Organisation:

This form of organisation structure emerges as the organisation grows in size. New departments are added and departmental activities become specialised. Specialisation creates sub- departments and it no longer remains feasible for top managers to control the activities of all the departments. Managers become specialised in their tasks and focus on activities related to their departmental tasks for the entire organisation.

Human resource manager ensures appointment of right persons at the right time and place, determines their wage structure, solves their grievances, frames leave rules, etc. Does he do it only for people of human resource department? No. He looks after activities related to personnel not only for the human resource department but production, finance and marketing departments also.

The finance department, similarly looks after financial receipts/ disbursements, surplus/deficiency of all the departments. Finance manager has authority over people throughout the organisation with respect to matters related to finance and personnel manager can issue orders with respect to matters related to staffing. Functional authority is “the right to give orders in a department other than one’s own.”

Functional authority is “the right that is delegated to an individual or a department to control specified processes, practices, policies, or other matters relating to activities undertaken by persons in other departments”. Authority over people of other departments is exercised not only by the line managers but also by managers of other departments.

One person, thus, receives orders from two or more functional heads and the principle of unity of command is violated. The authority that functional managers exercise is known as functional authority and this organisation is called functional organisation. Functional authority can be exercised by departmental managers (line managers) and staff specialists. Thus, it can be exercised in both line and staff departments.

Departmental managers:

Finance manager can ask all the departments to maintain financial records.

Staff specialists:

The accounting or the R&D managers do not have line authority over the functional areas but have functional authority to ensure efficient functioning of the line organisation.

Functional Authority on the Organisation Chart:

Functional authority can be exercised in both line organisations and line and staff organisations. (The figure depicts functional authority exercised by the department of finance. Similar authority can be exercised by other departments also).

Functional Organisation

The manager of consumer goods receives orders not only from the General Manager, Production (line manager) but also from General Managers of marketing, finance and personnel (functional managers).

Functional Organisation

The figure shows functional authority exercised by R & D manager (staff specialist) over different functional areas. Similar authority can be exercised by accounting manager also.

Features of functional organisation: Functional organisation is characterised by the following features:

1. The organisation is divided into functional departments.

2. Specialised knowledge of functional managers is shared by all the functional departments.

3. The organisation violates the principle of unity of command since one person gets orders from two or more bosses.

Merits of functional organisation:

This form of organisation structure has the following merits:

1. Specialisation:

Every functional head has authority over activities of the entire organisation with respect to his functional area. Finance manager controls financial activities of all the functional areas. He specialises in his area of work, promotes his work skills and motivates subordinates to perform better.

2. Economical:

One department, say personnel, looks after staffing needs of all the functional departments. All departments get their financial needs satisfied by the finance department. This reduces costs because if every department looks after its functional needs individually, it will increase the administrative costs. It avoids duplication of resources as they are centralised at the decision-making point.

3. Reduces burden of functional head:

Every functional head looks after activities of his department only. It relieves them from performing activities of other functional areas (with respect to managing their departments). For example, in the absence of functional organisation, personnel manager will have to look after the financial, accounting, research and other activities of his department, in addition to personnel activities, which shall be an added burden on him. This form of organisation structure thus, promotes clarity in the organisations as everyone is clear of his role.

4. Co-ordination:

Every functional manager looks after activities related to his functional area for all the departments and co-ordinates work of the organisation as a whole. Work related to one set of activities is under complete control of one manager. All decisions, references and instructions come from the point of reference and not necessarily the line managers. Total view of the organisation is, thus, the focus rather than the partial view.

5. Uniformity of operations:

There is uniformity in working of all the departments through functional authority. There is complete clarity regarding the line of command and communication processes.

6. Control:

Co-ordination and uniformity ensure effective control of activities of all the functional areas. Functional heads adopt effective techniques of control for activities related to their areas of expertise.

Limitations of functional organisation:

This form of organisation suffers from the following limitations:

1. Violation of unity of command:

The principle of unity of command is violated in the functional organisation as one subordinate is accountable to more than one boss. Subordinates find it difficult to carry out the instructions of more than one boss.

2. Co-ordination:

When functional heads focus on their departmental objectives, co­ordination of different functional areas becomes a problem. Focus on departmental or functional objectives may not totally contribute to organisational objectives. This can lead to goal displacement. Every functional manager tries to economise on resources related to his area.

Tight control on use of funds is good but that cannot be the sole objective of finance department. Looking after financial needs of all the departments, providing or re-allocating more or less funds to all the departments depending on their need is not feasible for a large-sized organisation.

3. Accountability:

No departmental head is completely accountable for the performance (good or bad) of the product. Every functional head partly contributes to the product (related to his area of specialisation) and cannot be held accountable for its success or failure. It, thus, becomes difficult to measure the performance of different departments. The ultimate accountability is of the top managers who may deviate from long-run strategic matters to short-run operational decisions.

4. Complexity of relationships:

In a functional organisation, there is wide gap between persons who make the decisions and those who implement them. The principle of unity of command is violated and the process of communication slows down. It becomes difficult for the functional head to control activities related to his department single- handedly. This complicates relationships between the superiors and subordinates.

5. Centralisation:

With increasing size of the organisation and widening gap between superiors and subordinates, the functional organisation becomes centralised, where people at lower levels go to the top positions every time they want to get their problems solved.

6. Delayed decisions:

Since every decision flows from the top, decision-making processes are delayed. Different functional heads view the problem and comment on solutions related to their area.

7. Inflexible:

The limitations tend to make functional organisation an inflexible structure. Changes cannot be made at the levels where decisions are implemented. It hampers the creativity and innovativeness of managers at the operative level.

The functional organisation structure is appropriate for small-sized firms which have limited levels in the organisational hierarchy. It is also suitable for organisations which have one product or a product line with similar products. It is not suitable for organisations with diversified operations. New products or activities may not be related to the existing ones and may require totally different decision-making skills or a new functional structure.

This may overburden the functional heads and in extreme situations, inter-departmental conflicts. This is not conducive for organisational growth. This is, thus, a suitable form of organisation if one or similar products are produced in the organisations.

Modern or Contemporary Organisational Formats:

Classical formats of organisation support division of work, specialisation and departmentation. They ignore the importance of horizontal relationships amongst people. Inter-relationships and social values is an important part of task relationships which cannot be ignored while framing the organisation structure.

While basic design of the organisation structure comes from the classical format, modern formats emphasize on a more flexible and environment-friendly structure. The popular forms of contemporary organisational formats re project organisation, matrix organisation, committee organisation and networking organisation.

These organisational formats are explained below:

I. Project Organisation:

With increase in business complexities as a result of increase in their size, work force, resources, interaction with the environment, managers found it difficult to coordinate business operations with departmental heads exercising vertical authority over their departmental members. There were continuous changes in the environment and organisations being open systems had to reschedule their activities by adding new activities and deleting the undesired ones.

There arose need for grouping people from different functional departments who could manage various business activities on project basis, that is, performing activities 01′ projects which are required and abandoning the undesired projects. This required organisations to be designed as project organisations.

Project organisation is structured to accomplish specific projects within specified constraints of time, money and quality. A bridge, dam or fly-over are constructed as project organisations. Once the objective is formed, work force is gathered and authority-responsibility structure is designed by giving the project manager authority over the activities of group members.

Project manager can be the head of a functional department. General Manager of production department, for example, can also be the project manager for a project. Responsibility of group members varies with structure of the organisation, some remain attached with the project till its completion, while others leave and join the organisation. The peculiar feature of this form of organisation is that once the project is over, the organisation is dissolved and group members seek jobs on other projects.

Project organisation does not have job titles and formal departments to which employees return after the project is completed. They use their skills, abilities and experience on other projects. All the activities are project based. Project teams form, disband and form again as the work requires. It is a flexible form of organisation as there is no departmentalisation or organisational hierarchy. Managers are not bosses; they are facilitators, mentors and coaches.

Richard M. Hodgetts defines a project organisation as “the gathering of the best available talent to accomplish a specific and complex undertaking within time, cost and/or quality parameters, followed by the disbanding of the team upon completion of the undertaking.”

According to John M. Stewart, a project team should be:

1. Definable in terms of a specific goal,

2. Unique and unfamiliar to the existing organisation,

3. Complex with regard to interdependence of activities,

4. Critical as regards probable gain or loss, and

5. Temporary as regards the need of the organisation.

Merits of Project Organisation:

Project organisation has the following merits:

1. Focus of attention:

The project manager focuses on one project only. This ensures successful completion of the project.

2. Effective control:

The project manager lays responsibilities of his group members and facilitates feedback and control.

3. Unity of command:

It respects unity of command since group members get instructions from the project manager only.

4. Fast decisions:

This structure does not have organisational hierarchy. There are no superiors and subordinates connected by the chain of command. This speeds up the decision-making processes.

5. Flexible structure:

It is a flexible structure that forms and dissolves as the work requires. It uses specialised knowledge and skills of people working on the project. Communication takes place through lateral relationships and encourages creativity and innovative abilities of people working on the project. The knowledge and resources are used on projects where they are required. Thus, there is optimum use of resources.

6. Adaptive to environment:

The organisation structure changes to environmental demands as it does not have a permanent structure.

Limitations of Project Organisation:

The project organisation has the following limitations:

1. Job security:

People who join the project from functional areas retain their jobs but those who join from outside the organisation lose their jobs once the project is completed. There is, thus, job insecurity for the project members.

2. Complexity of relationships:

Project manager and group members do not have well-defined relationships with respect to their interdependence. The communication process is, therefore, comparatively slow. As the project structure is temporary, people cannot identify themselves with specific departments. Their roles and responsibilities towards each other is not clear. There is lack of commitment and loyalty towards each other.

3. Small-sized organisations:

Project managers of small organisations do not have formal authority over the group members. However, they have the responsibility to complete the project. Thus, authority gap (responsibility without commensurate authority) can be harmful if the work environment is not supportive and cordial. They use personal skills like persuasion and negotiations to get the group members to work. A person who does not have informal leadership qualities cannot be a successful project manager.

II. Matrix Organisation:

Matrix organisation is a hybrid structure, a combination of functional and pure project structure. Group members of the project are also accountable to their functional heads. Employees are assigned to the project by functional heads till the completion of the project.

Employees, thus, have dual accountability in this form of organisation structure:

1. They are accountable to the functional heads in the vertical chain of command. The functional head is their line superior.

2. They are accountable to the project manager who exercises project authority over them. This accountability is shown by horizontal lines in the matrix organisation chart.

Every employee reports to two managers; one, the permanent manager with whom he is in line relationship and the other, the project manager with whom he is in horizontal relationship. The basic principle of unity of command is violated in this type of organisation structure. This is also called a ‘multiple command system’.

It is “an organisation structure that establishes dual channels of authority, performance, responsibility, evaluation and control.”

According to Bartol and Martin, “a matrix structure is a type of departmentalisation that superimposes a horizontal set of divisional reporting relationships onto a hierarchical functional structure”.

“It is an organisational structure that assigns specialists from different functional departments to work on one or more projects being led by project managers.”

After the project is completed, employees report back to their functional departments or are assigned another project by their functional heads.

“In theory, the matrix is a conflict resolution system through which strategic and operating priorities are negotiated (the strategic need for a new product or project; routine operating needs of various functional areas), power is shared, and resources are allocated internally on the basis of what is best for the unit as a whole.”

Evolution of matrix organisation structure:

Matrix organisation evolves in four phases:

1. Traditional structure:

This structure respects the principle of unity of command, i.e., command moves from top to bottom in the organisational hierarchy.

2. Temporary overlay:

The project is taken for a temporary duration of time to meet some specific needs and, therefore, positions are created in the functional structures which are headed by project managers.

3. Permanent overlay:

The project manager operates on a permanent basis. The project for launching advertisement campaigns, for example, may be an ongoing project for the advertisement manager.

4. Mature matrix:

The functional manager and project manager have equal powers over the employees. The two managers are simultaneously also known as matrix bosses.

Organisation Chart showing Matrix Organisation:

The matrix form of organisation appears on the organisation chart as follows:

Matrix Organisation

Merits of Matrix Organisation:

Matrix organisation has the following merits:

1. Decentralisation:

All decisions are taken by functional managers or project managers. Decisions are taken at the point where the problem arises. Top management can concentrate on strategic issues to adapt to environmental needs.

2. Multi-disciplinary co-operation:

People from different departments work together, understand each others’ responsibilities and co-operate with each other. This creates congenial work environment conducive to output.

3. Co-ordination:

Since people from different departments work as a team under the project manager, there is co-ordinated effort for the project objective.

4. Motivation:

People informally communicate with each other and work till completion of the project. Employees are not placed according to ranks as they are placed in the traditional organisational hierarchy. An employee, for example, who is 9th in the hierarchy in the traditional form of organisation may be placed at number two or three in the project design, according to his knowledge. This boosts the morale of employees.

5. Control:

Since project manager concentrates on a single project, there is better planning and control over project activities. He exercises authority of competence and knowledge rather than authority of position. This develops the potential of project manager and team members to maximise contribution to the project.

6. Efficient utilisation of resources:

There is optimum utilisation of resources since they are shared by functional and project managers. Each project manager focuses on a single project and uses resources to complete the project deadlines within the quantity and quality constraints.

Limitations of Matrix Organisation:

This form of organisation suffers from the following limitations:

1. Dual accountability:

Since every employee is accountable to functional manager and project manager, the principle of unity of command is violated. This can create confusion in the organisation.

2. Focus on inter-personal relationships:

Working together on a project can promote personal relationships of employees at the cost of efficient and timely completion of the project. Organisational relationships become complex if informal relationships develop excessively along with formal relationships.

3. Problem of co-ordination:

Both vertical (line manager) and horizontal (project manager) co-ordination generally cannot be achieved simultaneously. Project and functional managers have to communicate regularly, coordinate work demands on employees and resolve conflicts to work effectively.

4. Inter-project conflict:

If multiple projects are undertaken in the organisation, each project manager will try to own maximum share of resources from different functional departments. This can create conflict amongst project managers and members of different projects as they want maximum share of organisational resources.

5. Conflict between functional managers and project managers:

Not only project managers, even the functional managers compete for limited organisational resources. This can result in power struggle. Managers strive to maximise their power to derive maximum benefit of resources. Top managers intervene to reduce power struggle amongst people as it can result in counter-productive activities.

Matrix organisation structure is suitable for large-sized undertakings which carry out a number of small projects. Various manufacturing activities like aerospace, chemicals, electronics etc.; service activities like banking, insurance, retailing etc. and professional activities like designing an advertisement copy or a campaign, accounting etc. can be undertaken in a matrix organisation.

The limitations can be reduced by implementation of the matrix structure. Advantages of matrix structure outweigh its costs by clearly defining the objectives of the project; authorities and responsibilities of functional managers, project managers and group members; setting standards to check deviations and employing a system of rewards for efficient workers.

Pure Project Organisation and Matrix Organisation:

The following table highlights the points of difference between pure project organisation structure and matrix organisation structure:

III. Committee Organization:

‘One plus one makes eleven,’ or Two heads are better than one’ is the basis of making committees. Since top managers cannot deal with every problem, committees are formed which consist of people from different departments who collectively arrive at solutions to the problems which have been brought to it. Committee is a group of members to whom some matter is committed. It discusses only those matters which have been brought to it for deliberation within strictly defined area of jurisdiction. It cannot take decisions on matters which have not been forwarded to it.

Committee is “a group of persons to whom, as a group, some matter is committed.” Committees are made in all types of organisations, whether business or non-business, like Government, schools, colleges, banks, financial institutions etc. Committees can be made at any level of the organisation and its members can come from any functional area. A person can also be a member of more than one committee at the same point of time.

According to j. Presley and S. Keen, properly conducted committee meetings used for the right purpose can result in greater motivation, improved problem solving and increased output. Committees frame rules to deal with specific situations after consulting members of the group who express their opinion verbally, in writing or by show of hands; for example, leave committee frames leave rules of the company. Committees are chaired by the heads of committees known as conveners or chairpersons. Each committee member has one vote to decide on the matters delegated to it.

The committee:

1. Can make final decision on the matter delegated to it, or

2. Cannot make or recommend a decision but only deliberate on the matter and submit the information for decision-making to the managers.

Types of Committees: Different types of committees are as follows:

1. Line and staff committees:

The basis of forming line and staff committees is authority. A committee which has authority to make decisions to be implemented by the subordinates is a line committee and a committee which does not make decisions but only assists superiors and advices and counsels them is a staff committee. It enables line managers to effectively perform the managerial functions. The authority relationship of staff committee to its superiors is advisory in nature.

2. Ad hoc and standing committee:

The basis for forming ad hoc and standing committees is time frame. Committees formed for a specific purpose that dissolve after the purpose is achieved are ad hoc or temporary committees. For example, if a company wants to launch a new product and a committee forms to conduct the market survey which shall function till the survey is completed, will be an ad hoc committee. Once the survey is done and the product is launched, the committee stands dissolved. A committee which lasts for long duration of time is standing or permanent committee. These committees provide advisory functions to the chief executives.

3. Formal and informal committees:

The basis of forming formal and informal committees is their position on the organisation chart. Committees formed according to formal procedures of the organisation are known as formal committees. They are assigned duties, power and authority to discharge those duties.

They are formally depicted on the organisation charts and are permanent committees. Committees which are not shown on the organisation chart and form out of common thinking of a group of people are informal committees. They are temporary in nature and assist the top executives on specific official matters.

4. Plural executive committee and advisory committee:

A committee empowered to carry out the managerial functions of planning through controlling, to make decisions and order for their implementation is a plural executive committee. Board of directors takes important managerial decisions and orders for their implementation represent the plural executive committee. The advisory committee does not make decisions but only performs the advisory or recommendatory functions.

IV. Networking Organisation:

Network organisation is a structural arrangement that combines elements of function, product and geographic designs, while relying on a network arrangement to link subsidiaries across the nation or the world. This organisational format helps the companies take advantage of economies of scale at the global level along with catering to local customer demands.

This structure links subsidiaries of a company that are spread worldwide. Some subsidiaries specialise in manufacturing while others in sales. All of them are, however, linked with headquarters. Some are closely controlled by headquarters while others are more autonomous. The structure is, thus, a combination of geographic, functional and product elements.

It is “a temporary network of independent companies — suppliers, customers, even erstwhile rivals — linked by information technology to share skills, costs and access to one another’s markets. It will have neither central office nor organisation chart. It will have no hierarchy, no vertical integration.”

In a networking organisation, the firm develops relationships with suppliers, distributors and other business operators who specialise in their areas (sub-units) to achieve efficiency in its business. These sub-units are close to the market and, therefore, have better customer appeal regarding the local market. This specialisation is transferred by them to the parent organisation.

The main firm outsources its operations to the sub-units and remains connected with them electronically to maintain coordination in its main objectives. The sub-units keep changing according to environmental conditions. New units join and old ones leave the principal organisation as they deem profitable.

It is, thus, a temporary network of firms. It also reduces the risk of the parent firm as some of their operations are sub-contracted to other interdependent firms. These sub-firms have control over allocation of resources for their operations, though however, some of the decisions remain centralised with the parent firm.

As electronic networks reduce the costs of coordination, organisations use them more often to coordinate processes and, thus, become more virtual. Use of electronic networks facilitates outsourcing for companies and as a result, they become more virtual. Companies can outsource their services to other firms that are electronically connected to the head office.

A simple network organisation structure appears as follows:

Simple Network Organisation

This structure has units that coordinate product, functional and geographic information spread across different areas. These units are represented as nodes. At the same time, each product line unit or geographical unit has independent structure that best suits its operations.

The term ‘virtual organisation’ is increasingly used to describe a network of companies. In virtual organisations, interpersonal and group relations are increasingly mediated electronically, through the use of e-mail and other services of the new information and communication technologies. It is a temporary network amongst firms that work for a specific objective.

It is also known as boundary-less organisation, that is, an organisation whose design is not defined by vertical, horizontal or external boundaries designed by a pre-defined structure. This structure eliminates vertical and horizontal boundaries and breaks the external barriers between the company and its customers and suppliers.

Most of the companies feel they can operate successfully in today’s dynamic environment by remaining flexible and unstructured. They do not want to have a rigid, predefined structure. They want to eliminate the chain of command and replace departments with empowered teams of specialised units.

Vertical boundaries separate employees into organisational levels and hierarchies. They can be removed through cross-hierarchial teams and participative decision-making. This will flatten the organisation structure. Horizontal boundaries are created by work specialisation and departmentation.

They can be removed through cross-functional teams and organising activities around work processes rather than functional departments. External boundaries separate the organisation from its customers, suppliers and other stakeholders. These can be removed by using strategic alliances with suppliers or value-chain management customer- organisation linkages.

Value chain is the entire series of organisational work activities that add value at each step beginning with the processing of raw materials and ending with finished product in the hands of end users. Value chain management is the process of managing the entire sequence of integrated activities and information about product flows along the entire value chain.

The very idea of the network approach is that relations or interactions between units are the building blocks that sustain and define the network.

Typically, interactions result from exchange of resources, either material or informational, such as goods, money, information, services, social or emotional support, trust, influence etc. Patterns of who is tied to whom reveal the structure of the underlying network: they show how resources flow among units and how units are interconnected in the network.

The definition of a virtual organisation in literature varies, and has no uniform meaning. “Virtual organising is a matter of degree.”

According to Laudon & Laudon, virtual organisation is “organisation using networks linking people, assets and ideas to create and distribute products and services without being limited by traditional organisational boundaries or physical location”.

A firm may choose to go virtual for two main reasons:

1. To promote efficiency by obtaining goods and services from specialised manufacturers.

2. To use information technology that will reduce transaction costs.

The degree to which a company virtualizes depends on what proportion of its important manufacturing procedures take place beyond conventional organisational boundaries. One way to study network dynamics is Social Network Analysis (SNA). It examines patterns of relationships amongst people within their networks.

Relationships are used to group individuals and search for emerging patterns of information exchange between them. The Computer Mediated Communication (CMC) is an important dimension to network analysis. Electronic Mail, for example, is being used increasingly in relation to communication processes, particularly in an organisational context.

Components of Network Structure:

A network structure has the following components:

1. Dispersed sub-units:

Sub-units are located across the world. They provide the parent organisation the benefits of low factor costs or information on consumers’ tastes or technological developments.

2. Specialised operations:

These operations are performed by sub-units and focus on a specialised product line or market area. They are performed by expert services spread worldwide.

3. Interdependent relationships:

Sub-units carrying specialised operations are inter­dependent. Their relationships help in sharing information and resources amongst the specialised sub-units (subsidiaries) spread worldwide. In tourism industry, for example, there is strong networking between different units that arrange for tickets booking, hotel accommodation, transport for sight-seeing, airport transfers etc. both at the domestic and international levels. Though the client places his booking with the principal tourism organisation, it further has tie ups with different units which make tourism a complete package.

Many computer and automobile companies have alliances with different units that supply various components to it. Alliances may be formed for one or more business operations (accounting, finance, research, design, production planning and control, distribution etc.) and not necessarily for all these operations.

Diagrammatic Representation of Network Organisation Structure:

This organisation structure is complex and changes with changing locations of sub-units.

However, a typical network structure appears like this:

Typical Network Structure

This network structure shows that an Indian company has operations spread over a number of countries and produces single/multiple products through sub-units spread in different countries. Some of these units are controlled by the headquarters in India while others have independent management.

Network Structure of N. V. Philips — A Typical Example:

This network shows that N.V. Philips has operations spread in 60 countries and produces diverse products ranging from light bulbs to defense systems. The company has eight product divisions with varying number of units in each product line.

Network Structure of N.V. Philips