Structure of Organization, Types of Organization.

Organizational Structure

One of the most challenging tasks of a business may be organizing the people who perform its work. A business may begin with one person doing all the necessary tasks. As the business becomes successful and grows, however, there is generally more work, and more people are needed to perform various tasks. Through this division of work, individuals can become specialists at a specific job. Because there are several people—often in different locations—working toward a common objective, "there must be a plan showing how the work will be organized. The plan for the systematic arrangement of work is the organization structure. Organization structure is comprised of functions, relationships, responsibilities, authorities, and communications of individuals within each department" (Sexton, 1970, p. 23). The typical depiction of structure is the organizational chart. The formalized organizational chart has been around since 1854, when Daniel McCallum became general superintendent of the New York and Erie Railroad—one of the world's longest railroads. According to McCallum, since the railroad was one of the longest, the operating costs per mile should be less than those of shorter railroad lines. However, this was not the case. To remedy management inefficiencies, McCallum designed the first organizational chart in order to create a sense of structure. The organizational chart has been described as looking like a tree, with the roots representing the president and the board of directors, while the branches symbolize the various departments and the leaves depict the staff workers. The result of the organizational chart was a clear line of authority showing where subordinates were accountable to their immediate supervisors (Chandler, 1988, p. 156).

Traditional Structures:

Traditional organizational structures focus on the functions, or departments, within an organization, closely following the organization's customs and bureaucratic procedures. These structures have clearly defined lines of authority for all levels of management. Two traditional structures are line and line-and-staff.

Line Structure:

The line structure is defined by its clear chain of command, with final approval on decisions affecting the operations of the company still coming from the top down (Figure 1). Because the line structure is most often used in small organizations—such as small accounting offices and law firms, hair salons, and "mom-and-pop" stores—the president or CEO can easily provide information and direction to subordinates, thus allowing decisions to be made quickly.

Line structures by nature are fairly informal and involve few departments, making the organizations highly decentralized. Employees are generally on a first-name basis with the president, who is often available throughout the day to answer questions and/or to respond to situations as they arise. It is common to see the president or CEO working alongside the subordinates. Because the president is often responsible for wearing many "hats" and being responsible for many activities, she or he cannot be an expert in all areas.

Line-And-Staff Structure:

While the line structure would not be appropriate for larger companies, the line-and-staff structure is applicable because it helps to identify a set of guidelines for the people directly involved in completing the organization's work. This type of structure combines the flow of information from the line structure with the staff departments that service, advise, and support them (Boone and Kurtz, 1993, p. 259).

Line departments are involved in making decisions regarding the operation of the organization, while staff areas provide specialized support. The line-and-staff organizational structure "is necessary to provide specialized, functional assistance to all managers, to ensure adequate checks and balances, and to maintain accountability for end results" (Allen, 1970, p. 63).

An example of a line department might be the production department because it is directly responsible for producing the product. A staff department, on the other hand, has employees who advise and assist—making sure the product gets advertised or that the customer service representative's computer is working (Boone and Kurtz, 1993, p. 259). Based on the company's general organization, line-and-staff structures generally have a centralized chain of command. The line-and-staff managers have direct authority over their subordinates, but staff managers have no authority over line managers and their subordinates. Because there are more layers and presumably more guidelines to follow in this type of organization, the decision-making process is slower than in a line organization. The line-and-staff organizational structure is generally more formal in nature and has many departments.

Business Organizations:

Business organizations is an area of law that covers the broad array of rules governing the formation and operation of different kinds of entities by which individuals can organize to do business. The term is also used to describe the entities themselves. A variety of other terms are used fairly interchangeably to describe this area, including or business associations, business forms, and business entities. Reference to a "business" entity usually (though not always) indicates that entity's status as for-profit, as opposed to non-profit. Business organizations as an area of study Law schools typically offer either a single upper level course on business organizations, or offer several courses covering different aspects of this area of law. The area of study examines issues such as how each major form of business entity may be formed, operated, and dissolved; the degree to which limited liability protects investors; the extent to which a business can be held liable for the acts of an agent of the business; and the structures established by governments to monitor the buying and selling of ownership interests in large corporations.

The basic theory behind all business organizations is that, by combining certain functions within a single entity, a business can operate more efficiently, and thereby realize a greater profit. Governments seek to facilitate investment in profitable operations by creating rules that protect investors in a business from being held personally liable for debts incurred by that business, either through mismanagement, or because of wrongful acts.

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