Organization Structure: An organization structure shows the authority and

responsibility relationships between the various positions in the organization by

showing who reports to whom. Organization involves establishing an appropriate
structure for the goal seeking activities. It is an established pattern of relationship
among the components of the organization.

Formal and Informal Organization

Formal Organization: Chester I Bernard defines formal organization as -"a system of
consciously coordinated activities or forces of two or more persons. It refers to the
structure of well-defined jobs, each bearing a definite measure of authority,
responsibility and accountability." The essence of formal organization is conscious
common purpose and comes into being when persons:
(a) Are able to communicate with each other
(b) Are willing to act, and
(c) Share a purpose.
The formal organization is built around four key pillars.
They are:
(a) Division of labour
(b) Scalar and functional processes
(c) Structure, and
(d) Span of control

Thus, a formal organization is one resulting from planning where the pattern of
structure has already been determined by the top management.

Characteristic of Formal Organization

(a) Formal organization structure is laid down by the top management to achieve
organizational goals. (b) Formal organization prescribes the relationships amongst the
people working in the organization.

(c) The organization structures are consciously designed to enable the people of the
organization to work together for accomplishing the common objectives of the enterprise.

(d) Organization structure concentrates on the jobs to be performed and not the
individuals who are to perform jobs.

(e) In a formal organization, individuals are fitted into jobs and positions and work as
per the managerial decisions. Thus, the formal relations in the organization arise from
the pattern of responsibilities that are created by the management.
(f) A formal organization is bound by rules, regulations and procedures.

(g) In a formal organization, the position, authority, responsibility and accountability of

each level are clearly defined.
(h) Organization structure is based on division of labour and specialization to achieve
efficiency in operations.
(i) A formal organization is deliberately impersonal. The organization does not take into
consideration the sentiments of organizational members.
(j) The authority and responsibility relationships created by the organization structure
are to be honored by everyone.
(k) In a formal organization, coordination proceeds according to the prescribed pattern.

Advantages of Formal Organization

(a) The formal organization structure concentrates on the jobs to be performed. It,
therefore, makes everybody responsible for a given task.
(b) A formal organization is bound by rules, regulations and procedures. It thus ensures
law and order in the organization.
(c) The organization structure enables the people of the organization to work together
for accomplishing the common objectives of the enterprise.
Disadvantages or Criticisms of Formal Organization

(a) The formal organization does not take into consideration the sentiments of
organizational members.
(b) The formal organization does not consider the goals of the individuals. It is designed
to achieve the goals of the organization only.
(c) The formal organization is bound by rigid rules, regulations and procedures. This
makes the achievement of goals difficult.

2. Informal Organization:
Informal organization refers to the relationship between people in the organization based
on personal attitudes, emotions, prejudices, likes, dislikes etc. an informal organization
is an organization which is not established by any formal authority, but arises from the
personal and social relations of the people These relations are not developed according
to procedures and regulations laid down in Notes the formal organization structure;
generally large formal groups give rise to small informal or social groups. These groups
may be based on same taste, language, culture or some other factor. These groups are
not pre-planned, but they develop automatically within the organization according to its
environment.

Characteristics of Informal Organization

(a) Informal organization is not established by any formal authority. It is unplanned and
arises spontaneously.

(b) Informal organizations reflect human relationships. It arises from the personal and
social relations amongst the people working in the organization.

(c) Formation of informal organizations is a natural process. It is not based on rules,

regulations and procedures.

(d) The inter-relations amongst the people in an informal organization cannot be shown
in an organization chart.
(e) In the case of informal organization, the people cut across formal channels of
communications and communicate amongst themselves.
(f) The membership of informal organizations is voluntary. It arises spontaneously and
not by deliberate or conscious efforts.
(g) Membership of informal groups can be overlapping as a person may be member of a
number of informal groups.
(h) Informal organizations are based on common taste, problem, language, religion,
culture, etc. It is influenced by the personal attitudes, emotions, whims, likes and
dislikes etc. of the people in the organization.

Benefits of Informal Organization

(a) It blends with the formal organization to make it more effective.
(b) Many things which cannot be achieved through formal organization can be achieved
through informal organization.
(c) The presence of informal organization in an enterprise makes the managers plan and
act more carefully.
(d) Informal organization acts as a means by which the workers achieve a sense of
security and belonging. It provides social satisfaction to group members.
(e) An informal organization has a powerful influence on productivity and job
satisfaction.

(f) The informal leader lightens the burden of the formal manager and tries to fill in the
gaps in the manager's ability.
(g) Informal organization helps the group members to attain specific personal objectives.
(h) Informal organization is the best means of employee communication. It is very fast.
(i) Informal organization gives psychological satisfaction to the members. It acts as a
safety valve for the emotional problems and frustrations of the workers of the
organization because they get a platform to express their feelings.
(j) It serves as an agency for social control of human behavior.

Forms of Organization
Organization requires the creation of structural relationship among different
departments and the individuals working there for the accomplishment of desired goals.
Organization structure is primarily concerned with the allocation of tasks and delegation
of authority. The establishment of formal relationships among the individuals working
in the organization is very important to make clear the lines of authority in the
organization and to coordinate the efforts of different individuals in an efficient manner.

According to the different practices of distributing authority and responsibility among

the members of the enterprise, several types of organization structure have been
evolved. They are:

1. Line organization
2. Functional organization
3. Line and staff organization
4. Committee organization
5. Project Organization
6. Matrix Organization
 7. Free- Form Organization

1. Line Organization
This is the simplest and the earliest form of organization. It is also known as "Military",
"traditional", "Scalar" or "Hierarchical" form of organization. The line organization
represents the structure in a direct vertical relationship through which authority flows.
Under this, the line of authority flows vertically downward from top to bottom
throughout the organization. The quantum of authority is highest at the top and reduces
at each successive level down the hierarchy. All major decisions and orders are made
by the executives at the top and are handed down to their immediate subordinates who
in turn break up the orders into specific instructions for the purpose of their execution
by another set of subordinates. A direct relationship of authority and responsibility is
thus established between the superior and subordinate. The superior exercises a direct
authority over his subordinates who become entirely responsible for their performance
to their commanding superior.

Line organizations are of two types – pure line organizations and departmental line
organizations. In pure line organization, all individuals perform the same type of work
at any given level, whereas in departmental line organization, there are a number of
departments and each department performs different types of work. Prof. Florence
enunciates three principles which are necessary to realize the advantages of this system
and the non-observance of which would involve inefficiency.
1. Commands should be given to subordinates through the immediate superior; there
should be no skipping of links in the chain of command
2. There should be only one chain. That is, command should be received from only one
immediate superior.

3. The number of subordinates whose work is directly commanded by the superior

should be limited.

Merits of Line Organization

i. A line organization is simple and easy to establish and it can be easily understood
by workers.
ii. There is a clear division of authority and responsibility and each individual knows
to whom he is responsible.
iii.It provides unity of command, which in turn facilitates effective control and
supervision.
iv. It helps in taking quick and effective decisions because there is definite authority
at each level.
v. It ensures proper discipline because each manager is in close contact with his
subordinates

Demerits of Line Organization

i. With growth and development, a line organization over-burdens the top
executive with administrative work and he is unable to perform his job
properly and effectively.
ii. Line organization leads to lack of specialization because a line manager is
responsible for both planning and execution of work.
 iii. In a line organization, communication flows only from top, in case of wrong
decisions, subordinates carry out the decision without pointing out the
defects because they lack courage.
iv. In a line organization there is concentration of authority at the top and this
might lead to autocratic control which affects the enterprise adversely if the
top executives are not efficient. In spite of these limitations, a line organization
is suitable for small concerns employing a few people and carrying on routine
work, where there are fewer levels of authority.

2. Functional Organization
The concept of functional organization is based on the principles of specialization and
was devised by F.W. Taylor (Functional foremanship). In functional organization, each
specialist conveys his instructions direct to the personnel, rather than through the
chain of command. Functional authority remains confined to functional guidance of
different departments. Under this type organization, the activities of an enterprise are
classified into a number of functional areas.

Merits of Functional Organization

i. Functional organization helps to reap the benefits of specialization. Every
functional head is an expert in that particular function and helps
subordinates to effectively accomplish results in his area.
ii. The burden of top executives is reduced in functional organization because a
functional manager looks after only one function.
iii. In a functional organization there is effective and better control, because of
the expert knowledge of the functional managers. Moreover, in a functional
organization there is joint supervision by different functional heads.
iv. When compared to line organization, functional organization provides better
scope for expansion and diversification.
v. Functional organization leads to higher efficiency in operational because every
individual carries out only one function and seeks guidance for the same from
a specialist.

Demerits of Functional Organization

i. Functional organization is against the principle of unity of command, since a
subordinate is responsible to a large number of superiors.
ii. Functional organization faces the problem of succession. Lower level
executives are not provided with an opportunity for all round experience and
hence they do not fit into top level positions.
iii. Functional organization is very complex in nature with a number of cross
relationships which create confusion among workers.
iv. The decision making process in a functional organization is very slow because
certain decisions require the involvement of several functional heads.
v. Functional organization leads to lack of coordination because a functional
head thinks of only his function in the enterprise and ignores other functions.
Functional organization is suitable for all kinds of enterprise. But is should
be applied only at higher levels because at lower levels, too many cross
relationships are established and this creates confusion throughout the
enterprise

3. Line and Staff Organization

Line and staff organization is a combination of functional and line structure. In this,
line authority flows from top to bottom and the line executive is directly concerned with
the accomplishment of primary objectives. They are the actual doers. Line managers are
generalists and to not possess specialized knowledge to tackle complex problems. In
order to provide specialized assistance to line managers, staff positions are created in
the organization. The dictionary meaning to staff is a stick carried in the hand for
support. This means that a staff executive helps and aids line executives in their work.
They play the role of an advisory. In line and staff organization, the line authority
remains the same as in line organization. The only difference is that staff executives are
attached along with the line executive who help them by providing necessary advice on
important matters. The staff executives who are specialists do not have any power to
command subordinates in other department.

Merits of Line and Staff Organization

i. Line and staff organizations provide for specialized knowledge, where the staff
executives guide and advise the action of line executives.
ii. It reduces the burden of top executives because staff executives carry on
detailed investigation of each and every activity.
iii. Staff specialists provide apt and relevant information for decision making and
hence better decisions are taken. I
iv. It is more flexible when compared to line organization. As the business unit
grows, staff can be added to help the line executives.

Demerits of Line and Staff Organization

i. The concept of line and staff organization always creates confusion because it
is very difficult to define the authority relationship between line and staff.
ii. Staff executives do not take the task seriously because they are not
accountable for the result. This affects an organization to a very great extent.
iii. Another serious problem of line and staff organization is the constant conflict
between line and staff executives because of the different functions performed
by each.

4. Committee Organization
A committee is a group of persons who are consciously and deliberately formed to
discuss a problem and provide solutions to overcome it. They are formed for a specific
or state purpose and the scope it its activities are limited. Thus, a committee is a group
of persons to whom some matter is committed and they meet on an organized basis to
discuss and deal with the matter placed before it.: The following are the characteristics
of a committee:

i. A committee consists of a group of people, with a minimum of at least two

people and there is no limit for the maximum number of people.
ii. The scope of a committee is limited to extent of work that has been assigned
to it. It cannot deal with matters not specifically assigned it.
iii. The members of a committee arrive at decisions on the basis of one member
one-vote, provided they have authority to go into the problem assigned to
them.
iv. Committees may be either executive or non-executive in nature. An executive
committee takes decisions and implements them, whereas a non-executive
committee only provides suggestions and recommendations.
Types of Committees
The following are the different types of committees on the basis their nature and
function:

1. Standing or Ad-hoc Committee: A standing committee or a permanent committee

is one which continues for an indefinite period of time and is always present in the
organization. An ad-hoc or temporary Committee is formed for a specific and definite
purpose. It is a special purpose committee that is dissolved as soon as the task is
completed.

2. Executive or Advisory Committee: An executive committee is one which has full

authority to take decisions and implement them, whereas an advisory committee has
authority only to provide suggestions and recommendations which may or may not be
accepted.

3. Line of Staff Committee: A line committee has executive authority over its
subordinates and it coordinates and controls their activities. Whereas, a staff committee
only acts as an advisory body having no authority, it only provides advice and assistance
to line managers.
4. Formal or Informal Committee: Formal committees are duly constituted by
management on the basis of organizational rules and policies and are meant to
accomplish the objectives of an organization. They are represented in the organizational
structure, whereas informal committees are not constituted by management. They arise
because of personal relationship among employees who join together in order to solve
common problems.

Merits of Committees
The following merits of committees clearly highlight their use in management.
i. Pooling of Knowledge and Experience: The most important merit of using
committee is group judgement where knowledge and experience are pooled
together. Decisions are arrived in a joint manner. A committee works on the
principle that tow heads are better than one. There is exchange of ideas and
opinions before a conclusion is arrived at. Hence, decisions taken by a
committee are more logical and objective when compared to those taken by a
single individual.
ii. Motivation through Participation: In a committee, the members are allowed
to participate in the decision making process. This motivates them positively
and makes them more committed to the decision. Their involvement in
decision making helps them to effectively and efficiently implement the
decision. Thus, committees help in effective motivation of its members
through participation.
iii. Effective and Proper Coordination: Committees provide for effective
coordination by bringing together managers from different departments.
Normally decision making in a committee is a joint effort where members
share information and express diverse viewpoints. Through coordination a
number of organizational problems are solved by committees.
iv. A Tool for Management Development: Committees provide an opportunity
for management development through participation and involvement. By
being a member in different groups, a manager gains a lot of experience which
helps him to a great extent in performing his job. A committee being a group
 of persons, helps one another to learn from the experience and mistake of
others. Thus, committee’s act as tools for management development.
v. Representation of Diverse Interest Groups: Through committees, an
organization can provide representation to various interest groups, whereby
conflicting views can very easily be settled through motivation and
participation. When different interest groups are represented in a committee,
there is involvement and commitment in the decision making process.
vi. Effective Communication: Since committees involve representation of
diverse interest groups, information can be effectively and quickly transmitted
throughout the organization. By convening a committee meeting any
information can very easily be passed on to all members of the organization.
vii. Consolidation of Authority: Committees enable management to consolidate
authority that is splintered over several departments. In certain cases, an
individual manager may have limited authority and he cannot solve the
problem without simultaneous exercise of authority by other manger related
to the problem. Under such a situation a committee might be formed, where
splintered authority is consolidated, in order to solve special problems. The
committee includes all managers related with the problem.
viii. Fear of Too Much Authority in a Single Person: At times committees are
formed to avoid concentration of too much authority in a single person. The
line authority for certain actions is delegated to a committee rather than to an
individual, in order to control and check the excessive use of authority by a
single person.
ix. Avoidance of Action: Committees can be formed in order to delay and avoid
action. Management makes use of committees to cool off agitation and temper
on part of the affected people. Committees help management to buy time and
to avoid individual responsibility.

Demerits of Committees
The excessive use or lack of proper utilization of committees creates a server problem to
management. A committee is one made of the unfit, selected by the unwilling to do the
unnecessary. The following are the problems with committees:
i. Formation of a committee is a very costly and time consuming activity. The
cost incurred in formation of a committee is far below its benefits.
ii. Decisions taken by a committee are arrived at only slowly after a lot of
discussion and debate. Therefore, committees do not help to take quick and
on the spot decisions.
iii. Normally, in order to arrive at a unanimous decision, agreements are reached
on the basis of a compromise which may not be really helpful to management.
Compromise decisions only postpone a problem and they do not solve it.
iv. In certain cases, committees are dominated by few persons and their views
are accepted by the majority of the members when a unanimous decision is
to be taken because of undue pressure put on them.
v. Committees provide for group responsibility where it is difficult to fix
individual responsibility and as such, members feel unaccountable. This
leads to inefficiency.
vi. Committees are often misused to delay, avoid or to take unpleasant decisions.

5. Project Organization
Project organization is of recent origin developed after World War II. It is directed towards
completion of a big project or a small number of big projects. Project organization
appears very much like a functional structure. But a project organization disappears as
soon as the project task is over, whereas a functional structure is created on a
permanent basis. Moreover, project organization has been designed with a view to
overcome the problems of the functional organization namely, delay in decision making
and lack of coordination. The project organization is led by a project manager who is
responsible for the completion of the project. He coordinates all activities of the project.
Functional managers are drawn from different functional departments and they remain
in the project organization till their task is over. A project manager does not have proper
authority over functional managers. As a result, he will have to convince the functional
people to help him, to successfully complete the project.
Project organization is most suitable under the following situations.
i. The activity is unique and unfamiliar to the present organization.
ii. It has well defined and clear specifications and goals.
iii. It is complex in nature with interdependent tasks.
iv. Its successful completion is crucial to the organization.
v. The task is to be completed is crucial to the organization.

Merits of Project Organization

i. Project organization allows maximum utilization of specialized skill and
knowledge.
ii. It is tailor-made to meet specific needs of a particular project by concentrating
attention on a complex project.
iii. It provides more flexibility in handling resources by allocating them to the
projects when they are needed.

Demerits of Project Organization

i. Normally, project organization has a limited time and this creates a feeling of
uncertainty and insecurity among people in the organization.
ii. Lack of proper vertical authority makes the job of a project manager very
difficult. He has responsibility for completion of the project without direct
authority over people in the project.
iii. Decision making is very difficult in a project organization because of undue
influence and pressures from specialists of diverse field. I
iv. Project organization may lead to conflicts among the specialists because of
their different orientation.
Thus, motivation of specialists poses another problem to the project manager.

6. Matrix Organization
Just like project organization, matrix organization is also recent origin developed
after World War. II. It provides a flexible structure to achieve a series of project
objectives. It is created by merging two complementary organizations. It has a hybrid
grid structure where pure project organization is superimposed on a functional
structure.
Matrix Organization is a combination of project organization and functional
organization. In order to meet problems of growing size and complexity of
undertaking Matrix organization has been formed. It is more technically oriented and
flexible than the traditional line and staff organization.
Paul R. Lawrence and Stanley M. Davis have defined matrix organization as “any
organization that employs a multiple command system that includes not only
multiple command structure but also related support mechanism and an associated
organization culture and behavior pattern”.

From the definition it is clear that matrix organization leads to an overlapping of

command, control and behavior pattern.
A Matrix organization is different from a project organization in the sense, that
matrix organization involves a large number of small projects, whereas, a project
organization is suitable in case of accomplishment of a small number of large
projects. Another important difference is that in a project manager has full
responsibility for completion of the project because separate divisions or
departments are created and each manager is provided resources which he can
independently use. But in matrix organization the project manager does not have
complete authority, he will have to share resources with the rest of the enterprise.

Matrix organization consists of permanent functional departments. Besides, this

temporary project groups are established to handle unique short term projects.
Personnel required are taken from the functional department. The project manager
controls and coordinates their activities. Once the project task is completed they go
back to their respective functional departments. Thus, an individual in a matrix
organization has two superiors.

Merits of Matrix Organization

i. It facilitates better control and planning because it focuses attention and
resources on a single project.
ii. Matrix organization is more flexible than the traditional functional
organization.
iii. It provides for effective coordination and communication by facilitating direct
contact between the functional group and project manager. This provides
positive motivation to people engaged in a project.
iv. It emphasizes authority of knowledge rather than position and thereby it leads
to better utilization of professional services.
Demerits of Matrix Organization
i. Matrix organization leads to overlapping of command, thus violating the
principle of unity of command. People receive instructions and orders from
both functional and project managers
ii. The relationship in a matrix organization is very complex this leads to a lot of
confusion. Coordination of efforts becomes very difficult because
subordinates are not in a position to identify their superior as there are both
formal and informal relationships.
iii. Matrix organization involves sharing of resources and joint decision making.
In the absence of mutual trust and undertaking, conflicts arise. This affects
the organization and delays completion of the project.
iv. The morale of people in a matrix organization is very low, because people are
drawn temporarily from various departments and the project manager has no
line authority over them. This at times leads to lack of commitment and
involvement in the project.
7. Free-Form Organization
A free form organization is closely related to project and matrix organization. It is also
called as organic, naturalistic or ad-hoc form of organization. It is based on the logic
that the organization is an open system and the basic task of a manger is to ensure and
facilitate change in the organization which requires flexibility and adaptability. The
following are some of the important features of free form organization.

i. It is formed in order to meet challenges posed by the external environment

which is very unstable and dynamic
ii. The objectives of a free-form organization are development oriented and
long term in nature.
iii. In a free form organization any individual who is complete and suitable, is
given the power to make decisions.
iv. In a free form organization authority is based to competence and knowledge,
and not on status.
v. The structure of a free form organization will differ from situation to situation
depending upon the dynamic environment.
vi. There is no fixed channel for the flow of communication in a free-form
organization.
vii. A free form organization is very flexible and adapts itself to the highly dynamic
environment. Thus, free-form organizations are suitable for those business
units which work in a highly dynamic environment, which are ever changing
and highly flexible.