In this article we will discuss about the types of organisational structure as studied in management. This article will further help you to learn about:

  1. Types of Organisational Structure
  2. Types of Organisational Structures and their Advantages and Disadvantages
  3. Types of Organisational Structures used in Organisations
  4. Types of Organizational Structure in Management
  5. 4 Types of Organizational Structure
  6. 3 Types of Organizational Structure
  7. Line Organizational Structure
  8. Functional Organizational Structure

Types of Organisational Structure: Top 13 Types

An effective organizer tries to organize duties into meaningful subunits that can lead to have a far ahead vision in the enterprise’s executives. It is important to note that strategy and structure are interdependent and exercise an influence over each other. It is important to note that strategy and structure interdependent.

Cannon, a long-time consultant with McKinsey and company observed, ‘The experience of McKinsey supports the view that neither strategy nor structure can be determined independently of the other…Strategy can rarely succeed without an appropriate structure. In almost every kind of large-scale enterprise, examples can be found where well-conceived strategic plans were thwarted by an organization structure that delayed the execution of the plans or gave priority to the wrong set of considerations… Good structure is inseparably linked to strategy’.

Research indicates that when the strategy is properly implemented with the right organization structure, the firm is more effective. Chandler found that when firms shifted their strategies to diversification, they had to change their organization to a divisional form. In studying Swedish firms, Rhenman found that problems result from an inability or unwillingness to adapt the organization after strategic changes.

Type of Organisational Structure # 1. Entrepreneurial Structure:


This is the primitive form of structure that small firms dealing in a single product or service and covering local markets only adopt. The owner who is also the boss takes all decisions whether operational or strategic in nature.

Type of Organisational Structure # 2. Simple Structure:

The small entrepreneurial company producing one or a few related products for a specific market segment normally uses the simple structure. However, there is little diversion of managerial responsibility and little clear definition of who is responsible for what if there is more than one person involved. The operation is run by personal control and contact of an individual.

In this situation the entrepreneur often takes on most of the managerial tasks. No formal arrangements regarding organization exist, and employees perform multiple tasks. The main problem of this structure is that it can operate effectively only up to certain size, beyond which it becomes too difficult for one person alone to control.

Type of Organisational Structure # 3. Functional Structure:

In the single-business firm the various activities are organized by specialist function. This structure groups people on the basis of their common expertise and experience or because they use the same resources.


The functional structures are appropriate for a small to medium manufacturing business. A board usually composed of senior managers of the specialist functions together with a chairman and chief executive occupies the top position.

Human resource management and research and development functional heads are not members of the board in many companies. They predominantly operate the support roles, and do not take part in the formulation of strategy.

The development of the finance and marketing functions depends upon the size of the business. As firms grow larger, the functions become more fully developed. Research and development plays a supportive role in smaller firms to the production function, develops into full-blown function. Finance and accounting acquires a separate existence.

Marketing is introduced and tends to become super-ordinate to the sales function. A specialist corporate planner is introduced. An additional export sales manager is also introduced as overseas sales expand. The functional structure is also very effective in managing the single business in the service industry sector.


The functional structure is the logical pattern for dividing up the activities of the business provided that it is not too complex, by either product or geography. Even when a single-business firm expands geographically, it is possible to retain a form of functional structure in many cases, provided that production is not distributed but centralized.

Advantages of Functional Structure:

Hill and Jones have mentioned three advantages of functional structures:

1. If people who perform similar tasks are grouped together, they can learn from one another and become more specialized and productive.


2. People can monitor each other to make sure that all are performing their tasks effectively and not shirking their responsibilities As a result, the work process becomes more efficient, reducing manufacturing costs and increasing operational flexibility.

3. Functional structures give managers greater control of activities. Many difficulties arise when the number of levels in the hierarchy increases. If people are grouped into different functions, however, each with its’ own managers, then several different hierarchies are created and the company can avoid become too tall.

In a functional structure, there will be one hierarchy in each function. For example, one hierarchy in manufacturing and another in accounting and finance. Managing the business is much easier when different groups specialize in different organizational tasks and are managed separately.

Disadvantages of Functional Structure:


However, functional structures also have their share of disadvantages.

First, it becomes increasingly difficult to communicate across functions and to coordinate their activities. Second, as the number of its products increases, a company may find it difficult to measure the contribution of a product or a group of products to its overall productivity.

Third, location factors may also hamper coordination and control. Fourth, sometimes long term strategic considerations are ignored because management is preoccupied with solving communication and coordination problems. As a result, a company may lose direction and fail to take advantage of new opportunities while bureaucratic costs escalate.

Type of Organisational Structure # 4. Multidivisional Structure:

The multidivisional structure presents two main improvements over the functional structure. These improvements allow a company grow and diversify yet removes problems that arise from loss of control. For example, PepsiCo has three major divisions-soft drinks, snack foods, and restaurants and each has its own functions, such as marketing and R and D.


Each division functions as a profit center making it much easier for corporate headquarters staff to monitor and evaluate each division’s activities. Each division is also able to adopt the structure that best suits its needs.

In the multidivisional structure, day-to-day operations of a division are the responsibility of divisional management. Corporate division has strategic responsibility for overseeing long-germ plans and providing the guidance for interdivisional projects. When managed effectively at both the corporate and the divisional levels, a multi-divisional structure offers several advantages.

First- as in this structure each division is its own profit center financial controls can be applied to each business on the basis of profit criteria for establishing targets monitoring performance on a regular basis, and selectively intervening whenever problems arise.

Corporate headquarter is also in a better position to allocate corporate financial resources among competing divisions and identify the divisions in which investment of funds will yield the greatest long term returns. Second- it frees corporate staff from operating responsibilities to contemplate over wider strategic issues and for developing responses to environmental changes.


The multidivisional structure also enables corporate division to obtain the proper information to perform strategic planning functions. Third- by reducing information overload at the center, corporate managers can handle a greater of businesses consider opportunities for growth and diversification and intervene only when problems arise. Fourth, in a multidivisional structure, the individual efficiency of each autonomous division can be directly observed and measured in terms of the profit it generates. Autonomy makes divisional managers accountable for their own performance. The corporate office is thus in a better position to identify inefficiencies.

A multidivisional structure has its disadvantages as well. First- The multidivisional structure introduces a new level in the hierarchy -the corporate level. The difficulty lies in deciding how much authority and control to assign to the operating divisions and how much authority to retain at corporate level.

In real world when corporate level retained too much power and authority, the operating divisions lacked sufficient autonomy to develop the business strategy that might best meet the needs of the division.

On the other hand, when too much power was delegated to the divisions they pursued division objectives, with little heed to the needs of the whole corporation. As a result, not all of the potential gains from synergy could be achieved.

Second, divisions may maximize short-term profits, perhaps by cutting product development or new investments or marketing expenditure. This may cost the company clearly in the future. The problem stems from too tight financial control.

Third, divisions themselves may compete for resources, and this rivalry prevents synergy gains from emerging. Fourth, another problem of multidivisional structure is that of transfer pricing between divisions. Rivalry among divisions increases the problem of setting fair prices. Each supplying division tries to set the highest price for its outputs to maximize its own return on investment.


Such competition can completely undermine the corporate culture and make a company a battleground. Fifth, in order to improve the financial performance, divisions may reduce R and D expenditure of the division. Although this inflates divisional performance in the short term, it reduces a division’s ability to develop new products and leads to a fall in the stream of long-term profits.

Hence, corporate personnel must carefully control their interactions with the divisions to ensure that both the short and long term goals of the business are being achieved. Finally, multidivisional structures are expensive to run and manage. R and D is especially costly, and so some companies centralize such functions at the corporate level to serve all division.

The advantages of divisional structures must be weighed against their disadvantages, but an observant, professional management team that is aware of the issues involved can manage the disadvantages. The multidivisional structure is the dominant one today, which suggests its usefulness ‘as the means of managing the multi-business corporation.

Type of Organisational Structure # 5. Matrix Structure:

Often found in complex multinationals the matrix structure, a combination of structures, has become popular. It involves a combination of product and geographical divisions or functional and divisional structures, operating in tandem.

Matrix structures are often adopted because there is more than one factor around which a structure could be built, so that pure divisional structures would be inappropriate. In the matrix design, activities on the vertical axis are grouped by function, so that there is familiar differentiation of tasks into functions such as engineering, sales and marketing, and research and development.

In addition, superimposed on this vertical pattern is a horizontal pattern based on differentiation by product or project. The result is a complex network of reporting relationships among projects and functions.


In view of Knight, matrix structures improve the quality of decision-making in situations where there is a risk of one vital interest of the enterprise (e.g. a geographical area) dominating strategy at the expense of others (e.g. worldwide co­ordination of manufacturing).

The disadvantages of matrix structure are: First, under matrix structure there could be confusion regarding job and task responsibilities. Second the bureaucratic costs of operating this structure are very high compared with those of operating a functional structure.

Third, cost and profit responsibilities may not be very clear in the matrix organization. Fourth, the constant movement of employees around the matrix means that resources are spent establishing new team relationships and getting the project off the ground. Fifth, the two-boss employee’s role is difficult to manage, and care must be taken to avoid conflict between functions and projects over resources.

Sixth, the larger the organization, the more difficult it is to operate a matrix structure, because task and role relationship become complex. In such situations, the only option may be to shift to a multidivisional structure. Seventh, the matrix structure may encourage bureaucratization.

It is possible that project managers will take the leading role in planning and goal-setting, in which case the structure would work more like a product or multidivisional structure. Finally, a specific problem that has affected corporations operating multinational matrix structures has been the dominance of headquarters operations staff predominantly by home country nationals in attempting to set the strategies of overseas subsidiaries.

Where domestic product groups have attempted to set global strategy, there has often tended to be a lack of knowledge of overseas conditions, and policies have often been established on the basis of domestic conditions. This is especially true of US multinationals, but also applies to MNCs from other countries—most recently to the emerging Japanese MNCs.

Type of Organisational Structure # 6. SBUs Structure:


In the 1970s, faced with high level of complexity, the US General Electric Company, in conjunction with McKinsey and Company, developed the organizational concept of the Strategic Business Unit (SBU). Sharplin defined strategic business unit as “any part of a business organization which is treated separately for strategic management purposes.”

An SBU is a discrete element of the business serving specific products- markets with readily identifiable competitors and for which strategic planning can be conducted. Essentially, adding another level of management in a divisional structure after the divisions have been group under a divisional top management authority on the basis of common strategic interests can create SBUs.

An SBU organizational structure establishes coordination between divisions having common strategic interests, facilitates strategic management and control of large, diverse organizations and fixes accountability at the level of distinct business units, US General Electric introduced the SBU structure. The company’s departments, which formed the operation structure, were subdivided into 43 SBUs.

These units varied considerably in size. Some SBUs were grouped together to form “divisions” while others were large enough to stand-alone. However, each unit was essentially a complete business, and contained all the necessary functions to operate independently.

To be regarded as an SBU, a business identifies its actual and potential customers, and design comprehensive strategies to reach them, with clearly defined resources, an appropriate management structure and the ability to achieve objectives profitably at an acceptable measure of risk.

With the introduction of the SBU structure, the then President, Reg Jones, was able to personally evaluate the strategic plans of all units and, at the corporate center to allocate resources to them on the basis of their position on the competitive position-market attractive matrix.


Each SBU was assigned a specific set of strategic objectives and investment policy. A high growth SBU would be expected to increase market share and a strong low-growth business might be expected to keep investment to the minimum and to operate to maximize cash flow, which could be deployed elsewhere. While maintaining a multi-SBU set of divisions, GEC was able to operate a variety of investment strategies within a division.

The SBU structure can allow highly diversified corporations to integrate their organizations so as to optimize the strategic fit between related businesses and to reduce the complexity of the strategic planning process. The structure also helps to integrate the process of strategy formulation, at both the corporate and business levels, in a form of cascade.

Type of Organisational Structure # 7. Product Team Structure:

The product team structure has been a major structural innovation in recent years. It has advantages similar to a matrix structure but is much easier and far less costly to operate. This is because people are organized into permanent cross-function teams.

The structure by product places all the responsibility and authority under one manager to get the product (or service produced and marketed.) This is common with multi-product companies with diverse business line.

The product-team structure reduces bureaucratic costs and increases management’s ability to monitor and control the manufacturing process. Unlike the matrix structure, where teams are assigned temporarily to different projects, in product-team structure, functional specialists are assigned to permanent cross-functional teams.

Consequently the coordination is greatly reduced as compared to matrix structure where tasks and reporting relationship change rapidly. The formation of the cross-functional teams takes place at the beginning of the product development process so that any difficulties that arise can be dealt with before they acquire major proportions.


When authority is decentralized to the teams to take quick decisions, cross-functional teams result in increased innovation and customer responsiveness. Chrysler from the functional structure moved to a product team structure.

Chrysler’s top management attributed its success to its new product team structure, which uses cross-functional product teams. Another example is that of Lexmark which shifted to a product team structure in order to reduce costs and speed product development.

Type of Organisational Structure # 8. Cross-Functional Management Structure:

During the 1960s several Japanese companies introduced cross-functional management structures when they realized that inter-departmental communication and cooperation were poor and departmental group dynamics were not aligned toward corporate strategy.

They also accepted and that for a specific function such a quality management, departmental responsibilities were usually not clear and the department lacked the authorization to act. In 1962, therefore, Toyota recognized that it was essential to introduce a cross-functional management structure as part of its Total quality control program.

Type of Organisational Structure # 9. Horizontal Structure:

The traditional vertical organizational structure has come under increasing pressure in today’s rapidly changing environment, in which time and cost pressures are forcing reconsideration of the vertical structure and a move toward horizontal structures organized around the core processes. In the horizontal form of organization, work is primarily designed around a small number of core processes.

These link the activities of employees to the needs of suppliers and customers, so as to improve the performance of all three. Work and the management of work, are performed by teams rather than individuals. While still hierarchical, the new structure tends to be flatter than traditional functional system.

A number of key principles of horizontal organizations have been identified.

These include:

1. Organize around the process, not task.

2. Flatten the hierarchy by minimizing the subdivision of work-flows and non- value added activities.

3. Assign ownership of processes and process performance.

4. Link performance objectives and evaluation in customer satisfaction

5. Make teams, not individuals, the principal building blocks of organizational performance and design.

6. Combine managerial and non-managerial activities as often as possible.

7. Treat multiple competencies as the rule, not the exception.

8. Inform and train personnel on a “Just in time to perform” basis, not on a “Need to know” basis.

9. Maximize supplier and customer contact

10. Reward the development of motivational skills and team performance, not just individual performance.

It is difficult to find the correct balance between vertical and horizontal structures. However, such a structural transformation may be necessary to overcome the existing power structure for successful implementation. Horizontal structures are a natural consequence of reengineering strategies, and while accepted by top management, may well meet serious resistance in the ranks of middle management who may be “delayed” in the process of change.

Type of Organisational Structure # 10. Holding Company Structure:

The holding company structure is usually found in companies that expand or diversify by acquisition. The central office has no role to play in the strategy of the constituent member companies within the holding company.

If the holding companies did not possess the appropriate acquisition capabilities of integration the new subsidiaries with the holding company, they begin to manage themselves. The board structure of the holding companies generally constitutes of CEOs’ of a number of subsidiary companies, operating under a chairman.

The chairman might be a non-executive or may be unable to intervene in the operations of the subsidiaries. Such companies pursue their own strategies in the absence of any formalized strategic plans. They are interested in keeping their autonomy, and do not prefer to be subject to strict financial and strategic control from the central office.

In some corporations no attempt is made to influence the strategies of subsidiaries, although they are subject to tight financial control. Hanson Trust could be seen as a holding company. The holding companies generally follow unstable strategy since in the absence of control they tend to undertake actions that may lead to financial imbalance.

The adequate integration and rationalization of acquisitions may not take place. Such strategic moves may be undertaken as only increases the corporate size but also reduces profitability.

Type of Organisational Structure # 11. Area-Based Divisional Structure or Geographic Structure:

The area based divisional structures are especially to be found in multinational corporations, but they may also be found in relatively un-diversified national companies. Such structures are particularly prevalent in service industries such as retailers, banks, railroads, utilities, insurance, and restaurants.

Advantages of Area-Based Divisional Structure:

1. It enables to tailor strategy to the needs of each geographic market.

2. It takes the benefit of local market, fiscal, and tax opportunities on a local basis.

3. It creates a cadre of multinational general managers.

Disadvantages of Area Based-Divisional Structure:

1. This structure creates problems of coordination with product divisions and functions.

2. It poses problems of maintaining a common corporate image/reputation from area to area.

3. It creates problems of standardizing especially marketing.

4. It increases potentially additional costs due to an extra layer of management.

The two variants of area-based divisional structure are found:

1. Area Functional Structure:

Area functional structure is commonly found where there are low levels of product differentiation, high levels of regional market differentiation, economies of scale in production, transportation and/or distribution on a regional basis on low levels of interregional trading.

2. Area Product Divisional Structure:

Area product divisional structure is found in large MNCs involving a network of product and geographic interests, a need to provide a significant coordination on an area basis between local activities and a high product flow between national subsidiaries.

Area-based divisional structures have been introduced first in particular areas and then extended on a global scale. For instance, many US corporations initially established European and/or Latin American headquarters and then expanded to other parts of the world. Consequently, Brussels, London and Paris include among the major centers.

Type of Organisational Structure # 12. Network Structure—The Virtual Organization:

The network structure is a newer and somewhat more radical organizational design.

It is an example of what could be termed a “non-structure” by its virtual elimination of in-house business functions and outsourcing of many activities. A corporation organized in this manner is often called a virtual organization because it is composed of a series of project groups or collaborations linked by constantly changing nonhierarchical, cobweb-like networks.

When the business environment of a firm is unstable and is expected to remain so and there is usually a strong need for innovation and quick response, the network structure proves to be most useful. Instead of having salaried employees, it 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 procure through vertical integration. Computer networking and sophisticated information systems have drastically reduced the costs of the marketplace.

The organization is now shrunk to only a shell with a small headquarters connected to some completely owned division, partially owned subsidiaries, and other independent companies. In its ultimate form, the 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.

Nike, Reebok, and Benetton use the network structure in their operations function by subcontracting manufacturing to other companies in low-cost locations around the work. This network structure facilitates an organization with enhanced flexibility and adaptability to cope with rapid technological change and shifting patterns of international business and competition. It permits a company to concentrate on its distinctive competencies while collecting efficiencies from other firms concentrating their efforts in their areas of expertise.

The network structure, however, is considered only a transitional structure because it is inherently unstable and subject to tensions. The firm is also unable to discover synergies by combining activities.

Type of Organisational Structure # 13. Cellular Organization:

Some authors believe that the evolution of organizational forms is leading from the matrix and the network to the cellular. A cellular organization is composed of self- managing teams, autonomous business units, and etc. that can operate alone but that can interact with other cells to produce a more potent and competent business mechanisms. The independence and interdependence of cellular organizations

Generates and shares the knowledge and expertise to produce continuous innovation. The cellular form makes a fine ‘combination of dispersed entrepreneurship of the divisional structure, customer responsiveness of the matrix, and self-organizing knowledge and asset sharing of the network’.

The cellular structure is similar to a current trend in industry of using internal joint ventures to temporarily combine specialized expertise and skills within a corporation to accomplish task individual units alone could not accomplish.

The pressure for a continuous process of innovation in all industries has given rise to cellular form of organization. Each cell performs entrepreneurial responsibility to the larger organization. It adds value by keeping the firm’s total knowledge assets more fully in use than any other type of structure.

Types of Organisational Structure: Top 4 Types

All the people working in the enterprise are assigned certain jobs and for their successful accomplishment some authority is also given to them. It depends upon the nature of the job in every enterprise to think as to how authority is to be given to the employees.

There can be some difference in the nature of the work in different enterprises. It means because of the different nature of the works, methods of distributing authorities and responsibilities will also be different. In other words, different business enterprises have separate organisational structure.

Following are the prominent types of organisational structure:

1. Line Organizational Structure

2. Line and Staff Organisation

3. Functional Organisation

4. Committee Organisation

Type # 1. Line Organizational Structure:

This is the simplest and the oldest method of organisational structure which is called by many names by management experts- like military organisation, vertical organisation, scalar organisation, departmental organisation and ideal organisation.

It is called line organisation because in it the authority and responsibility move from top to bottom in a straight line. The topmost officer is the general manager who gives orders to the departmental managers, the departmental managers give orders to the superintendent of their department, the superintendent orders his subordinate, the foreman, and the foreman orders the workers.

In this way everybody receives orders from his immediate superior and passes orders to his immediate subordinates. All the employees in the organisation have some superior and some subordinates, with the Exception of the top most superior and lowest level subordinate, because the top-level officer has no superior and the lowest level worker has no subordinates.

It is called military organisation simply because of the fact that organisational structure in the army is done on this basis because an order given by the General reaches the soldiers through their superiors like Colonel, Major, Captain, Lieutinent, etc.

Characteristics of Line Organisation:

Following are the chief characteristics of line organisation:

(1) Orders move from top to bottom in a straight line.

(2) Complaints and suggestions move from bottom to top in a straight line.

(3) Every employee receives his orders from his nearest superior.

(4) Every employee is answerable only to his nearest superior.

(5) Every superior has a limited number of subordinates.

(6) Authority is concentrated in the hands of top level officer.

(7) The responsibility for the success or failure of the organisation lies entirely on the top level officer.

Types of Line Organisation:

A. Pure Line Organisation.

B. Departmental Line Organisation.

A. Pure Line Organisation:

This form or design of the organisational structure becomes necessary only when the activities of all the employees working on the same level happen to be similar. For example, if an enterprise produces a particular product, the top level officer will be the General Manager and on the level next to him there will be only one production manager from the point of view of production.

It means that at the departmental level there is the need of only one department because all other activities are not so important, and hence, there is no need to have a separate department for them. Next to the production manager will be the foreman and under him will be the workers.

If the amount of work happens to be large, more than one foreman can be appointed to have a better control as separate human group of workers will function under each foreman. In practice there are very few pure line organisations because there are no business enterprises where all the activities are of similar nature.

B. Departmental Line Organisation:

In the departmental line organisation the General Manager happens to be at the top post and many departments are created under him. For the establishment of the departments all the activities of the enterprise are divided among different groups.

For example, purchase of material and production will be under the department of production; finance department will take care of accounts and finance; the job of sales and advertisement will be handled by the marketing department, and similarly, the function of making available the employees will be performed by the personnel department. A head of every department is appointed and he is called departmental manager. The work of every department is done under the guidance of departmental head.

Evaluation of Line Organisation:

The merits and demerits of line organisation are as follows:

Merits of Line Organisation:

(1) Easy to Establish- The line organisation can be easily established. It is so simple that workers understand is easily.

(2) Unity of Command- All the functions are performed efficiently and quickly because there is only one superior to order the subordinates.

(3) Clear Division of Authority and Responsibility- Every employee knows clearly his field of work and he also knows as to whom he is answerable for his work performance.

(4) Speedy Action- Under this organisational structure all the decisions can easily be taken because there is generally one person to take decisions and he fully knows his authority and responsibility.

(5) Coordination- Because of the control of one man over one working group, there is always coordination.

(6) Easy to find out Defaulter- Since authority and responsibility are clearly defined, the defaulter can easily be found out and punished.

(7) Flexibility- The organisational structure can easily be changed in case of expansion of business or due to some other circumstances.

(8) Less Expensive Form- In comparison with other organisational structures there are less expenses involved in this form of organisational structure.

(9) More Chances of Development- Every employee is given some authority and responsibility so that he can work with a sense of responsibility. So they perform their work with dedication and hard labour. Since they are free to take decision they display their competency and develop it in view of the opportunities available.

(10) Quick Solution of Problems- In this organisational structure every employee has a direct contact with his officer, and, therefore, in the face of any problem he can contact his officer and find out solution quickly.

Demerits of Line Organisation:

(1) Overloading of Key Men:

In this form of organisational structure the General Manager or the departmental managers if there are different departments have to carry the burden of taking decisions and getting them implemented. They are so much occupied with their daily routine that they hardly find any time to think about future. Sometimes the decisions turn out to be wrong because of the over-loading of work.

(2) Lack of Speciality:

Every departmental manager has to make plans for his department and get them implemented also. Apart from this there are many complexities of business which have to be looked after. Such a person whose attention is divided can never be an expert in any field.

(3) Inadequate Communication:

In such an organisational structure communication moves from top to bottom in a single direction. The reason is that the subordinates dare not say anything to their superiors. Even if the superiors impose some wrong decision upon them, they accept it without a murmur. In this way because of the inadequate communication the enterprise has to face loss.

(4) Lack of Initiative:

Under this system the subordinates have to carry out the orders of their superiors. Since the orders are enforced strictly, the subordinates are not in a position to offer their suggestions and consequently, the spirit of initiative gets weakened.

(5) Possibility of Favourtism:

All those people who do not oppose their superiors get preference in promotion. On the other hand, anybody who opposes his superiors in the interest of the enterprise is ignored. In this way under this organisation there is an absolute possibility of favourtism.

(6) Excessive Dependence:

The success of such an organisation depends mainly on a few officers. So long these people remain working in the enterprise everything moves on smoothly, and the moment they desert it, there is disorder and the whole organisation fails.

(7) Monopoly over Decisions:

All the decisions in the enterprise are monopolised by some individuals and they are not prepared to listen to any suggestion. There is always -a difficulty in implementing such decisions.


After having studied the merits and demerits of line organisation we can say that this organisational system is a blessing for the small business. Whatever may be the expanded form of organisational structure in case of large business, the line organisational structure does creep in, in some form or the other.

This system is suitable mostly in the following situations:

(i) Where the size of business is small.

(ii) Where the number of employees is small.

(iii) Where the business is only of one kind, or in other words, where only a single product is manufactured and sold.

Type # 2. Line and Staff Organisation:

The first form of line organisation, ‘Pure line organisation’ is rarely seen in practice, while its second form ‘departmental line organisation’ is usually found among small business enterprises. The chief defect of this form is that under this organisational structure the functions of thinking and execution have to be performed by one individual as a result of which his work load increases.

That is why this structure is not adopted in a large size business. In order to remove its defects an amended form of this structure was born which is known as line and staff organisation.

Meaning of Line and Staff Organisation:

Under the line and staff organisation, the function of line is similar to its function under the line organisation but some staff or experts are also appointed as advisors to the line officers. The function of the line officers is to take decisions, while the function of the staff officers is to advise them. Staff officers are experts in their respective fields and they offer their useful advice after analysing the problems presented by the line officers.

In this way the work of thinking and execution is done by different persons and this removes the chief defect of the line organisation. It can be adopted in case of large business enterprises.

It is, however, important to make it clear that the line officers are not bound to accept the advice offered by the staff officers because the line officers alone are responsible for the final outcome.

Definitions of Line and Staff Organisation:

(1) According to Louis A Allen, “Staff refers to those elements of the organisation which provide advice and service to the line”.

(2) According to Newman, “Staff work is that part of managerial work that an executive assigns to someone outside the chain of command”.

(3) According to Earnest Dale, “Line executives are those in charge of function that contribute directly to the main objective of business, staff executives are those who contribute counsel and special services to the line”.

Characteristics of Line and Staff Organisation:

(1) The work of ‘thinking’ and ‘execution’ is divided into two parts. The staff executives do ‘thinking’ while the line executives translate this thinking into reality.

(2) The line of the line organisation remains intact and the benefit of the advice of the experts becomes available.

(3) The experts have only the right to tender advice, its rejection or acceptance depends on the line executives.

(4) The subordinates of the line executives remain their subordinates alone and they cannot be treated as the subordinates of the staff executives.

(5) The principle of the unity of command remains implemented because the orders are received only through a single officer.

(6) The movement of authority is from top to bottom.

(7) The movement of suggestions and complaints is from bottom to top.

Evaluation of Line and Staff Organisation:


This form of organisation has the following chief merits:

(1) Sound Decision:

In this organisation the decisions taken by the line executives are good because the basis of all the decisions is the advice of the experts.

(2) Increase in Efficiency:

The division of the work of the line executives increases efficiency as a result of which they start taking quick and good decisions.

(3) Specialisation Possible:

The work of thinking and execution are divided and, therefore, the staff executives and the line executives attain specialisation in their respective fields.

(4) Advantage of Line Organisation:

This organisation system is an improved version of the line organisation and, therefore, it has all the advantages of line organisation.

(5) Research Facilities:

The staff executives do not have to remain busy in daily routine and the line executives ask for their suggestions only in special circumstances. Therefore, the staff executives have enough time at their disposal for research work. During this time they discover new procedures which benefit the enterprise.

(6) More Facility of Expansion:

Legal and other complexities are increasing in modern business. In these circumstances the expansion of business becomes difficult. However, when an organisation has the services of the experts available to it, there cannot be any possibility of any difficulty.

(7) Decrease in Production Costs:

Experts find out new methods of production which make it easier to increase production of good quality products with the minimum cost.

(8) Discipline:

In this organisation because of the unity of command there is no problem on account of discipline.


The main demerits of the line and staff organisation are as under:

(1) More Administrative Costs:

In this form of organisational structure generally more than one experts are appointed with one line executive and sometimes their advice turns out to be impracticable and hence useless. Thus, it is very costly to have them as part of the organisational structure.

(2) Lack of Responsibility of Experts:

Experts have no hand in the success or failure of the decisions. Sometimes they do not give sound advice simply because of this.

(3) Conflict between Line and Staff Authority:

On the one hand the line executives claim that they play a major role in the attainment of the objectives of the enterprise and in case of adverse results they are answerable. Therefore, they are an important part of the enterprise. Under this impression the line executives start treating the staff executives as inferior employees and do not pay any attention to their advice. On the other hand, the staff executives start losing initiatives on account of their advice being ignored regularly.

As a result of this they do not give any special attention to the problems of the line executives. Thus both become antagonistic towards each other. Such an atmosphere pushes the organisation towards destruction.

(4) Only Theoretical Advice:

The knowledge and experience of the staff executives happens to be more theoretical than practical. Thus, they offer advice only on the strength of their bookish knowledge and do not pay attention to the actual problems of the organisation.

(5) Lengthy Decision-Making Process:

In this form of organisation the decision-making process gets unduly lengthy. First, a problem appears before the line executives, then they place the problem before the staff executives, who after deliberations give their advice. The whole process consumes much time and sometimes some good opportunities of profit slip away.

(6) Ambiguity Regarding Authorities:

There is an ambiguity among the relations of the line executives and the staff executives. Usually the line executives consider themselves senior while the staff executives oppose this.

(7) Dependence on Experts:

Sometimes it so happens that the line executives get habituated to do every work with the advice of the staff executives. The result is that in the absence of experts the line executives feel handicapped and their efficiency is reduced.


The line and staff organisation has proved a blessing to a large sized business. Since the legal and other complexities have increased, it has become almost a dream to achieve success in business in the absence of experts. The chief drawback of this kind of organisation is the conflict between two types of officers. Their conflict can be ended by clearly defining their relations.

Type # 3. Functional Organizational Structure:

The father of this form of organisation is Fredric W. Taylor. This form is completely based on the principle of specialisation and under it the ability of the experts is fully utilised. In the line and staff organisation the experts’ job is to give advice but in this form of organisation experts give advice and take decisions as well. Under the functional organisation work is divided into small units and allotted to different experts. Thus, benefits of specialisation are obtained.

Taylor has defined a functional organisation like this, “The functional organisation consists of so dividing the management that each man down from the assistant superintendent shall have as few functions as possible to perform. If practicable, the work of each man in the management should be confined to the performance of single leading function.”

Taylor has suggested the division of the work of factory manager into two sub-departments – (i) Planning department and (ii) Production department. In both these departments four experts are appointed in each department. The experts in the planning department do planning and the experts in the production department help production.

Specialists of Experts of Planning Department and their Functions:

(1) Route Clerk:

This clerk ensures the sequence of completing a particular work, meaning thereby the stages it shall have to pass before being finalised. He also decides the job to be done for the day and where it is to be done.

(2) Instruction Card Clerk:

This clerk prepares the instruction cards for the workers and hands them over to the gang boss. These cards contain information about the nature of the work, procedure of doing it, material to be used and the details about machinery.

(3) Time and Cost Clerk:

This clerk decides as to when a particular work is to be started and finished, meaning thereby as to what time the whole work will take. It is also decided at the same time at what cost the product will be produced.

(4) Discipline Officer:

The discipline officer ensures that every work is being performed in a disciplined manner.

Specialists of Production Department and their Functions:

(1) Gang Boss:

The workers are divided into various groups from the point of view of control. A group leader is selected who is known as gang boss. He is expected to ensure that both the workers and the machines are fit enough for production and that the material required for their use has been made available to them.

(2) Speed Boss:

The main function of the speed boss is to ensure that all the workers are performing their job at the required or expected speed. If it is not so, the speed boss tries to find out the cause of slow speed and finds out a solution for it.

(3) Repair Boss:

The main function of the repair boss is to keep the machines and tools in working condition.

(4) Inspector:

He inspects the things produced and compares their quality with the standard prescribed for them and tries to find out the difference. In case of unfavourable result he initiates corrective action.

Characteristics of Functional Organisation:

The chief characteristics of the functional organisation are the following:

(i) The chief characteristic of this organisation is that the experts have the authority of taking action along with giving advice or consultancy.

(ii) The work is divided into eight groups which yield the benefit of specialisation.

(iii) In this organisation the work of the factory is divided into two departments – Planning and Production.

(iv) In this organisation the principle of ‘Unity of Command’ is violated.


Following are the merits and demerits of the functional organisation:


(1) Full Use of Experts’ Knowledge:

Every work is assigned to an expert. He stakes all his knowledge and experience into the work because he knows that his decision will be implemented. In this way the use of expert knowledge becomes possible.

(2) Efficiency is Increased:

Since the workers get orders from various experts, they do not have to think about them. In this way the burden of their work is lessened and it results in the increase in their efficiency.

(3) Mass Production Possible:

Mass production is possible in the functional organisation because of the availability of the benefit of specialisation which yields the benefits of production on a large scale.

(4) Better Organisation:

By appointing various experts in place of foremen and dividing their work on mental and executive basis, the better execution of the work is ensured.

(5) More Flexibility:

In view of the expansion or contraction of business the organisational structure can easily be adjusted according to the nature of business.

(6) Easy Training:

In this organisation an employee usually handles the same work which facilitates his training.


(1) Violation of the Principle of Unity of Command:

In this organisation an important principle of management is violated. A worker gets orders from many officers simultaneously as a result of which he cannot understand as to which order is to be given priority. As a result of this complexity or confusion his work efficiency is reduced.

(2) Lack of Coordination:

Coordination becomes difficult in view of the help sought from functional experts.

(3) Difficult to Fix Responsibility:

It becomes difficult for top hierarchy to fix responsibility in view of adverse results. Every expert tries to evade responsibility by shifting his weakness to others.

(4) Complicated Procedure:

Dividing the work into different parts and sub-parts is in itself a difficult process.

(5) Conflict among Experts:

There are usually conflicts among employees, they being of the same level. All consider themselves superiors and nobody cares for anybody.

(6) Expensive Method:

Administrative expenses mount because of the appointment of various bosses while the return is inadequate. This system is absolutely inappropriate for the small business.

(7) Discipline is Slackened:

Since a work is controlled by many persons, it leads to diminishing responsibility and the lack of responsible employees breeds indiscipline.


This system is useful for big business enterprises having a large scale production and where experts knowledge is necessary.

Type # 4. Committee Organisation:

Committee organisation is not a form of business organisation which can be implemented independently. In other words, it cannot be implemented as a regular and independent organisation. It is used with the purpose of helping the other regular forms of organisation

According to Newman, “A committee consists of a group of people specially designed to perform some administrative acts”.

According to Terry “A body of persons elected or appointed to meet on an organisational basis for the discussion and dealing of matters brought before it.”

The above definitions lead to the conclusion that a committee is a group of some persons who solves the problems arising in administrative sphere with the help of mutual deliberations.

Types of Committees:

In business organisation generally four types of committees are established:

(1) Advisory Committee:

When a committee possesses the authority of staff executives or the experts, it is called advisory committee. Experts in different fields are appointed members of the committee who take decision only after mutual deliberations. They, however, do not have the authority to get these decisions implemented.

(2) Executive Committee:

A committee which has the authority to take decisions and also get them implemented is called executive committee. Board of Directors in the company organisation is an example of executive committee. Whatever decisions are taken by the Board of Directors they are implemented through the medium of the General Manager.

(3) Joint Consultative Committee:

In this committee the representatives of the workers and managers deliberate on the common interests and make mutual relations sweet.

(4) Special Purpose Committees:

Committees which are appointed with special aims are called special purpose committees – like budget committee, pay committee, financial consultation committee, etc.

Evaluation of Committee Organisation:

Following are the merits and demerits of committee organisation:


(1) Sound Decisions:

Members of the Committee take their decisions after careful deliberations and, therefore, all decisions happen to be balanced, reasonable and justifiable.

(2) Coordination:

Committee keeps a strong watch on all the activities of an enterprise and are helpful in establishing coordination among them.

(3) Easy Communication:

In a committee organisation all the persons get together for deliberations and, therefore, they get acquainted with the ideas of other people.

(4) Decentralisation of Authority:

In a committee organisation the power is not concentrated in one hand but is collectively shared by many individuals. Therefore, no member of the committee can overlook the collective interests.

(5) Development of New Ideas:

When many persons sit together for deliberation, many new things come to light. The more experienced members help in implementing those new ideas by suitably amending them.

(6) Risky Decisions:

Some decisions are more risky and everybody is afraid of taking them independently, while such decisions can easily be taken in the committee because .of collective responsibility.

(7) Facilitates Training:

All the old and new members participate in the deliberations of the committee. The knowledge of the new members increases on hearing the arguments of the old members and after sometime they too start giving their sound ideas. Thus, the committees are a very good medium of giving training to the new members.

(8) Stability:

The existence of the committee remains intact even if some members retire or leave the committee because of some other reasons. On the leaving of some member another person is appointed in his place to complete the number of the members of the committee.

(9) Easy Implementation of Decision:

While taking decisions all those members, who are to implement them, are consulted. Hence, there is no difficulty in implementing the decisions.

(10) Representations of Common Interests:

Generally, members from all the departments take part in the proceedings of the committees. Therefore, common interests are given more importance rather than the interests of a particular department.


(1) Delay in Decisions:

It is true that with the help of the opinions of many persons in the committee solid decisions are taken but it is equally true that sometimes there are unnecessary arguments over a particular issue which delays decisions. Sometimes good profitable opportunities slip away while the decision-taking goes on merrily.

(2) Expensive Organisation:

Committee organisation is the most expensive system. There are many members of a committee who get a fat remuneration while they have no daily work. Moreover, much expense is involved in calling the members to get together at a particular place repeatedly because of not taking any final decision.

(3) Difficulty in Deciding the Responsibility:

Nobody can be held responsible in case the adverse results are obtained as a result of the decision of the committee. Everybody tries to find fault with one another.

(4) Lack of Secrecy:

Because of the interference of many persons in the committee there is a lack of secrecy. Sometimes the enterprise has to face loss when the decisions get leaked and reach other enterprises.

(5) Lack of Democracy:

Generally, it is felt that the committee organisation is a democratic organisation. But because of the predominance of some senior members only their view points are accepted and the remaining members are just silent spectators. If they speak out something their ideas are ignored. In this way there is a lack of democracy in these committees.

(6) Lack of Initiative:

Generally, only some members of the committee have the capacity to take effective decisions, while the credit for the good results obtained from their decision is shared by everyone. In such a situation, when the credit goes to other members also, they also start taking decisions in a careless manner. Therefore, the initiative of all the members suffers a loss.

(7) Against the Managerial Development:

The establishment of committees checks the development of the managers because they get dependent on the committees for every big or small decision and leave their own efforts. Consequently, in case of adverse results, the managers try to cover their inadequacies and shift the blame to the committees.

(8) Diversion of Routine Functions:

Usually, the departmental managers happen to be the members of the committees. If a manager happens to be the member of more committees at a time, it will affect the daily routine work of his own department.

After studying the merits and demerits of the committee organisation we can say that if the unnecessary arguments are removed from the deliberations of the committees, and every member gets the opportunity to express his ideas, it can prove to be useful.

Suggestions for making Committee Organisation Effective:

(1) Minimum Membership:

The number of the members of a committee should not be large. Although there is no definite limit yet only three or four members will be effective. The more number of the members spoils time in unnecessary arguments which ultimately delays decision. Therefore, an effort should be made to fix the membership of the committee at the minimum.

(2) Proper Selection of Members:

The success of a committee depends on the choice of the right members. The choice should be on the basis of merit rather than recommendation. The members should have the argumentative skill.

(3) Well-Defined Authority:

The authority of the committee should be clearly defined so that the members are in a position to exercise their authority properly.

(4) Efficient Chairman:

All the members of the committee should be competent but it is more important to have a competent chairman. An efficient chairman checks the unnecessary arguments from getting lengthier and conducts the meeting in a disciplined manner.

(5) Members of Equal Status:

All the members of the committee should belong to the same hierarchy so that they can deliberate more freely.

(6) More Weightage to Organisational Interests:

The members should take care of the overall interests of the enterprise instead of the interests of a particular department.

(7) Complete Participation:

A good committee should have the quality of complete participation which means that all the members should have the right to speak and nobody’s ideas should be ignored.

(8) Adequate Preparation:

The information about the meeting of the committee should be communicated to all the members well in time. The subjects to be taken up for discussion at the meeting should be clearly specified so that the members come prepared on the subjects concerned.


The committee organisation cannot work as an independent organisational structure, but it can be established as an aid to some independent organisational structure. It is more useful to adopt this system for the purpose of planning, controlling and solving departmental problems in a big business.

Contingency or Situational Factors Affecting Organisation Structure:

There is no well accepted form of organisation which can be applied in all situations. The suitability of the form of organisation depends on situation.

Following are the chief contingency factors affecting the organisational structure:

(1) Size of Organisation:

In the formation of organisational structure the size of the organisation plays an important part. Size refers to the number of employees in an organisation. If the number of the employees is small a centralised organisation can be adopted meaning thereby that the whole authority can remain centered in the hands of one officer. On the contrary, if the number of employees is large a decentralised organisation can be adopted. In such a situation power cannot remain concentrated in the hand of one individual.

(2) Span of Control:

Span of control means adequate number of subordinates under a superior. The superiors and organisational structure is decided on the basis of the span of control. If the span of control is small the organisational structure will be vertical and if it happens to be large it will be horizontal.

(3) Objectives of Organisation:

Organisational structure is deeply affected by the objectives of the organisation because it is created with the sole purpose of achieving these objectives.

(4) Managerial Characteristics:

Organisational structure is also affected from the managerial point of view. If the top level managers feel that their employees are shirkers or sluggish they will plan the organisational structure in a manner that will ensure adequate control over them. On the contrary, if they feel that their employees are dedicated an atmosphere of freedom will be created.

(5) Main Long-Term Goal:

If the enterprise has a long-term aim of expansion, the centralised organisational structure will be ineffective and impracticable. Hence, a decentralised organisational structure shall have to be adopted.

(6) Environment:

Environment also affects the organisational structure. Environment includes change in the tastes of the customers, entry of competitors in the market, legal and political changes, economic changes, etc. If the environment happens to be more uncertain specialists will be needed who can make a forecast of the environment. On the contrary, if the environment is certain or stable a simple organisational structure can do.

(7) Technology Used:

If the modern technology is being used in the enterprise for the purpose of production, more specialisation will be required and on that very basis the organisational structure will be created.

(8) Nature of Work:

The nature of work is equally important in the organisational structure.

Organisation is of four types on the basis of work which are as under:

(i) Common Benefit Organisation- like labour union, trade union, etc.

(ii) Business Concern- like manufacturing companies, companies dealing in finished products, banks, etc.

(iii) Service Organisation- like insurance companies, private hospitals, universities, etc.

(iv) Common Welfare Organisation- like Post-office, Govt., hospitals, etc.

For all the above mentioned four types there will be separate organisational structure because in all the four divisions of authority control is necessary separately.