Understanding the organizational structure of a company is crucial for its success. It's the blueprint that defines how information is shared and reported among members and their positions. In this blog post, we'll explore three main types of organizational structures, how they complement different business strategies, and the role of organizational controls in guiding a company's actions.
Three Main Organizational Structures
Simple Structure
This structure is characterized by a single decision-maker who works with a group of individuals to execute their decisions. It's common in startups or small businesses, where the relationships and reporting channels are informal. The simple structure allows for quick decision-making and flexibility.
Functional Structure
A functional structure has a CEO and specialized managers, each leading their own team. Teams collaborate to execute the CEO's strategy, as seen in companies like Tesla and Apple. This structure is ideal for businesses offering multiple related products, as it promotes efficiency and expertise in specific areas. Notice that even though Apple has different product categories, Steve Jobs opted for collaboration and maintained the functional structure.
Multidivisional Structure (Matrix Organization)
In a multidivisional structure, individuals are grouped into specialized divisions or business units. There are three variations: Cooperative, Strategic Business Unit, and Competitive. Disney, for example, uses this structure, with divisions such as Parks, Studios, and Disney+ working together to achieve the CEO's strategy. This structure allows for both horizontal and vertical information flow.
Organizational controls play a pivotal role in guiding a company's strategy execution by offering benchmarks for comparison and suggesting necessary corrections. These controls are divided into two main categories:
Strategic Controls
Strategic controls concentrate on intangible resources and are subjective in nature. They help companies monitor and adjust their strategies based on qualitative factors. Some examples of strategic controls include subjective measures like customer satisfaction and brand reputation.
Financial Controls
Financial controls are objective measures based on a company's financial performance. These controls enable businesses to compare their results with competitors in the industry and evaluate their overall financial health. Some common financial controls include budget variance analysis and key performance indicators (KPIs). Stock price is an excellent example of a financial control that helps businesses evaluate their performance.
An effective organizational structure and control system are essential for a company's success. Understanding the differences between simple, functional, and multidivisional structures can help you choose the right one for your business, while strategic and financial controls provide valuable feedback to drive improvement.
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