An organizational structure refers to the comprehensive set of formal rules and frameworks within a company that determine how employees, tasks, and resources are distributed and coordinated to achieve business objectives. It defines the static architecture of the organization, within which operational processes are executed.
Purpose and Function
The organizational structure provides a foundational framework by linking positions, hierarchical roles, and departments. This framework structures the company both vertically (hierarchy and reporting lines) and horizontally (task and departmental divisions). The concept was first formalized in early works by Frederick Taylor (1911) and Henri Fayol (1916), who introduced principles of scientific and administrative management, respectively.
The structure is visually represented through an organizational chart, which outlines the superior-subordinate relationships between company units and roles. One of the classic examples is the single-line system, where each position reports to only one direct superior.
Figure 1: Single-line organizational system (Krüger, 1993, p. 65)
(A typical example of a traditional hierarchical structure.)
Building an Organizational Structure
An organizational structure is developed through a process that includes:
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Task decomposition: Breaking down the company’s overall mission into specific tasks.
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Task bundling: Grouping related tasks into roles or positions.
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Hierarchy formation: Assigning authority and responsibility to create departments and higher organizational units.
These structural elements define how responsibilities are assigned and how communication and authority flow throughout the company. The way in which positions are grouped and the hierarchy is established defines the type of organizational structure.
Objectives of an Effective Organizational Structure
According to Hoffmann (1992), a well-designed structure serves the following goals:
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Substantive objectives:
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Achieving the company’s technical and economic mission
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Avoiding duplication of effort
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Clearly defining roles and responsibilities
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Efficiently managing interfaces between departments
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Employee-oriented objectives:
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Creating motivating and meaningful roles
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Fostering employee engagement through integration into supportive departmental contexts
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Adaptability objectives:
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Ensuring the structure remains flexible and responsive to changing market conditions and internal growth
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Types of Organizational Structures
A wide variety of organizational forms have emerged to meet different strategic and operational needs:
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Functional structure: Organized by specialized functions (e.g., marketing, finance)
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Divisional structure: Divided by products, markets, or geographic regions
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Matrix structure: Combines two dimensions (e.g., function and region) with dual reporting lines
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Network structure: Emphasizes flexibility and interconnected teams, reducing reliance on traditional hierarchy
Each structure has its advantages depending on the company’s size, strategy, and external environment. Recent trends emphasize agility and collaboration, leading many organizations toward decentralized and network-based structures.
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