Advantages and limitations of different types of organization structure Structure

Main features

Organized around one central figure.

Totally centralized; no division of responsibility

Organized around tasks to be carried out.

Centralized.

Divisions likely to be profit centres and may be seen as strategic business units for planning and control purposes.

Divisions/ business units headed by general managers who have responsibility for their own resources.

Decentralized.

Double definition of profit centres.

Permanent and full dual control of operating units – though one will be generally more powerful than the other.

Authority and accountability defined in terms of particular decisions.

Situations where appropriate

Simple companies in early stages of their development

Small companies, few plants, limited product or service diversity.

Relatively stable situations.

Growing in size and complexity.

Appropriate divisional/ business splits exist.

Organizations growing through mergers and acquisition.

Turbulent environments.

When producing a number of different products or services.

Geographic splits with cultural distinctions in company’s markets.

Large multi- product, multinational companies with significant interrelationships and interdependencies.

Small sophisticated service companies.

Advantages

Enables the founder, who has a logical or intuitive grasp of the business, to control its early growth and development

Controlled by strategic leaders/ chief executive. Relatively low overheads.

Efficient.

Clearly delineated external relationships.

Specialist managers develop expertise.

Relatively simple lines of control.

Can promote competitive advantage through the func

Spreads profit responsibility.

Enables evaluation of contributions of various activities.

Motivates managers and facilitates development of both specialists and generalists.

Enables adaptive change.

CEO concentrates on corporate strategy.

Growth through a

Can be entrepreneurial.

Divestment can be managed more easily.

Decisions can be taken locally, decentralized within a large corporation, which might otherwise be bureaucratic.

Optimum use of skills and resources – and high- quality informed decisions, reconciling conflicts within the organization.

Enables control of growth and increasing complexity.

Opportunities for management development.

Limitations

Founder may have insufficient knowledge in certain areas.

Only appropriate up to a certain size.

Succession problems – specialists not generalists are created.

Unlikely to be entrepreneurial or adaptive.

Profit responsibility exclusively with CEO.

Becomes stretched by growth and product diversification.

Functional managers may concentrate on short-te strategic developments.

Problems of ensuring coordination between functions – rivalry may develop.

Functional experts may seek to build mini- empires.

Conflict between divisions for resources.

Possible confusion over locus of responsibility (local or head office).

Duplication of efforts and resources.

Divisions may think short-term and concentrate on profits.

Divisions may be of different sizes and some may grow very large.

Evaluation of relative performances may be difficult.

Coordination of interdependent divisions and establishing transfer pricing may be difficult.

Difficult to implement.

Dual responsibilities can cause confusion.

Accounting and control difficulties.

Potential conflict between the two wings, with one generally more powerful.

High overhead costs.

Decision making can be slow.

Source: summarized from Thompson (2001)