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Types of Organisation Structure

Last Updated : 11 May, 2023
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The term structure refers to the management of parts and interrelationships among activities and people. Therefore, organisation structure is an element of job position that provides the basis on which managers and non-managerial employees perform their assigned jobs. It is the role assigned to them and the authority relationship between various positions. It is the framework within which managerial and operating tasks are performed. 

It is the outcome of the organising process where the structure of an organisation is created by the top management, and this structure is called a formal structure. The idea is to ensure a smooth flow of communication and effective control over the organisation. It provides a framework where the employees can perform their respective tasks efficiently. It is greatly influenced by the span of management, which means the number of subordinates that can be effectively managed by the superior. So, every manager must consider the span of management while creating the organisation structure.

The organisation is a structural relationship by which an enterprise is bound together and the framework in which individual effort is coordinated.

– Koontz and O’Donnell

Need and Benefit of Organisation Structure

The need for creating an organisation structure arises when the business grows beyond a certain minimum limit. In case, the organisation is run by only one man, then there is no need for an organisation structure because all activities are performed by the owner itself. But when the organisation grows, it becomes difficult to coordinate the activities of different members. In this case, the organisation structure is needed.

 Benefits of Organisation Structure

The organisation structure helps in the efficient functioning of an organisation. There are so many advantages of organisation structure:

  • It allocates authority and responsibility.
  • It lays down the pattern of communication and coordination.
  • It facilitates proper control over the operation of a business enterprise.
  • It facilities the growth and development of the enterprise.
  • It makes an organisation adaptable to changes.

Types of Organisational Structure

Types of Organisational Structure


Organisational structure depends on the nature and activity of the organisation. The organisation structure can be classified into two categories:

  • Functional Structure
  • Divisional structure

1. Functional Structure

Functional organisation structure refers to a system of organising in which various activities are classified into several functions, and for each function, a department is created and placed under the charge of a functional expert. In this type, each major or basic function is organised as a separate department. Again a major function may be divided into various sub-function. Functional structure is the most widely used organisation structure. As it becomes necessary for an expanded business enterprise to appoint experts possessing specialized knowledge. 

For example, production, sales and finance are the basic functions of the manufacturing enterprise. The function may be classified into various sub-functions, such as repair and maintenance, quality control, etc. This concept grew out of function foremanship suggested by F.W. Taylor. He recommended the appointment of specialists at different positions that the subordinate may serve and receive orders from several specialists and managers working over there.


A Functional structure is suitable for the following uses:

  • When the organisation has to carry out diversified activities.
  • When the size of the organisation is large.
  • When the task requires a high degree of specialization.
Advantages and Disadvantages of Functional Structure


Advantages of Functional Structure

The following are the advantages of functional structure:

1. Specialization: Functional structure promotes specialization because employees perform similar work within a department and it improves their efficiency.

2. Effective Control and Coordination: Functional structure promotes effective control and coordination within a department due to the similarity of work or individuals of one department being closely tied together, so they develop a link between each other. It helps the departmental manager in coordination and performing various activities. 

3. Improves Efficiency: Experts and experienced officers are specially appointed for each functional department. It helps in increasing managerial and operational efficiency, which results in increased profits.

4. Avoids Duplications: It helps in avoiding duplication of efforts, which leads to economies of scale and reduces the cost of production.

5. Easy Training:  It makes the training of employees easier as the focus is only on a limited range of skills.

6. Proper Attention: Functional structure ensures that different functions get due attention.

Disadvantages of Functional Structure

The following are the disadvantages of functional structure:

1. Functional Empire: Employees involved in achieving their departmental goals, don’t know their organisational goals. Such practice leads to a functional empire in which departmental functions are given more importance. 

2. Difficulty in Coordination: Departmental managers have a limited outlook, so they don’t look beyond their departments. It makes coordination difficult between different departments. Coordination is also difficult when the size of the department is very large.

3. Difficult to hold Accountable: It becomes difficult to hold a particular department accountable if the organisation’s goal is not clear. For example, if a company has not achieved the sales target, then there is no certain reason for the failure to achieve the organisational goals.

4. Conflict of Interest: Functional structure may lead to conflict between two or more departments if their interest is not achieved. For example, if the sales department insists on a customer-friendly design, which is not acceptable to the production department, then such disagreement is harmful to the organisation as a whole.

5. Inflexibility: Employees get training for one function only, and functional heads are not trained for the top management, as a result, they can not be shifted to the other department or another position.

2. Divisional Structure

When jobs related to one product are grouped under one department then it is termed a divisional structure. This type of structure is suitable for a large organisation that has several products. Under this method, a separate department is created for each major product. Each department is headed by a divisional manager, who has to carry out all functional activities related to the departments. Every department operates as a multifunctional unit because all necessary functions are performed over there. In this type of structure, each division work as a profit centre, and the divisional head is responsible for the profit and loss of each division.


A Divisional structure is suitable for the following uses:

  • When large varieties of products are manufactured by using different productive sources.
  • When an organisation grows and needs to add more employees
  • When it is important to determine the profit and loss made by each product line. 
  • When an enterprise creates more departments and introduces new levels of management.
Advantages and Disadvantages of Divisional Structure


Advantages of Divisional Structure

The following are the advantages of divisional structure:

1. Product Specialization: Divisional structure leads to specialization in a particular product because all activities related to one product are grouped in one department.

2. Greater Accountability: In a divisional structure, each product department is treated as the profit center. So, the departmental manager is accountable for his own profit and loss. This provides a base for measuring performance. 

3. Flexibility: Divisional structure promotes flexibility because each division works as an autonomous unit. This thing leads to faster decision-making and allows greater flexibility to change in the environment.

4. Expansion and Growth: Divisional structure facilitates diversification and expansion of the organisation because a new division can be added without interrupting the existing decision.

Disadvantages of Divisional Structure

The following are the disadvantages of divisional structure:

1. Department Conflicts: Conflicts may arise among different departments, such as production, marketing, sales, etc., with respect to the allocation of funds. A particular department may seek to maximize its profits at the cost of other departments.   

2. Costly: There is a duplication of physical facilities and functions. Each product division has to maintain its own facilities and personnel. It may lead to an increase in operating costs. Since there may be duplication of activities.

3. Ignore Organisational Interests: Divisional structure provides managers with the authority to supervise all activities related to a particular division. Managers focus on their own products without thinking of the rest of the organisation. Thus, organisational objectives suffer and become difficult to accomplish.  

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