Organizational Systems (MIS 20.04.2021)

Organizational Systems

What Are Organizational Systems?

An organizational system is, quite simply, how a company is set up. A good organizational structure lays out both a hierarchy and the flow of communication in a company. It is important for every business, no matter its size, to implement an organizational system. There are many benefits to having a well-defined organizational structure, including improved efficiency, productivity and decision-making. Each structure has its strengths and weaknesses. Ultimately, these pros and cons depend on the type of business you run, your industry, the size of your organization and other factors. It is important to consider every kind of organizational system before deciding which is right for your company.

 

Structure defines how each division of a business is set up, the hierarchy of who reports to whom and how communication flows throughout the organization. Broken down even further, an organizational structure defines how each role in an organization function. With a well-defined organizational structure all employees know what is expected of them and to whom they report. Business owners should think long and hard about which system to choose, as each organization has unique needs. An organizational structure that is right for one company will not be right for another.

 

Organizational Systems in Business

There are four main types of organizational structures: (1) functional, (2) divisional, (3) matrix and (4) flat. Each system has unique features.

 

1. Functional organizational structure: A functional organizational structure is a traditional hierarchy. Many companies, especially larger corporations, follow the functional structure. This system features several specialized divisions such as marketing, finance, sales, human resources and operations. Then a senior manager oversees all the specialized divisions. The reporting flow is clear. Each employee reports to their senior, including division heads, who report to the senior management. Senior management oversees the entire structure. Because the company remains split up into specialized divisions, employees tend to become specialized as well. This causes a clear path for promotion and growth. However, the divisions can have trouble communicating with one another. Because all departments report upwards i.e., vertical communication, there is little horizontal communication between them, leaving little space for holistic, whole-company thinking, except at the top management level. This makes the functional organizational system slow to adapt to change.

 

Examples of the functional system:

Functional organizational systems have historically been used by the military, universities and government entities. Over the years, functional hierarchies have become less popular, and many organizations have moved away from them. However, they are still in use by certain businesses. One example of how this type of organizational system might be used is in a traditional factory setting. The factory manager oversees the different divisions of the factory, which are each specialized. Each division has its own manager, all of which report directly to the overseeing factory manager. Another example could be a retail store. A store manager oversees the operations from the top of the pyramid. Below are different departments. Perhaps there is one for inventory, one for customer service and one for marketing and promotions. Each has its own supervisor, and all report to the general manager.