What type of organizational structure would fit best in a stable environment?

Different businesses need different working conditions to reach their respective strategic goals. Organizational structure provides the foundation for these working conditions. To design a structure, a small-business owner first considers the company’s situation, looking at both the internal and external conditions the business faces. With that information, the owner can align the company’s goals with opportunities, protect the business from threats, and build a structure that best promotes the company’s agenda. Since opportunities and threats emerge from the external environment, it directly influences the choice of a company’s organizational structure.

PEST

1. The acronym PEST — political/legal, economic, sociocultural and technological — is an easy way to remember areas of the external environment that should be assessed when deciding strategy and designing structure. Changes or stabilization in these areas impact businesses. For instance, a stable political environment won’t require the adaptability that an unstable political environment will. A technological breakthrough, meanwhile, may demand a transformation in the way a company operates, suggesting that the structure must be flexible enough to accommodate the evolution.

Organic Structures

1. Free-flowing, loose structures are known as organic because they can change as conditions demand. This adaptability suits dynamic or unstable external environments. The innovative ideas and visions needed to compete in a dynamic environment find fertile ground in a company built on an organic structure. The setup encourages empowerment by minimizing management, resulting in a flat organizational chart. Because of this characteristic, companies using an organic structure are sometimes called flat companies. Flat companies decentralize authority.

Mechanistic Structures

1. Tight, controlled structures are mechanistic, operating in a predictable way and according to many rules. Jobs are specialized, broken down into simple tasks to increase efficiency. Because standardization and control take supervision, a management hierarchy characterizes the organizational structure, making it tall or vertical. Mechanistic structures can take advantage of a stable external environment to ramp up production, standardize products, or increase efficiency and lower costs through economies of scale. Power flows down from the top, retained as much as possible by management.

Structures for Stability

1. The most mechanistic forms of organization are the functional and divisional structures. To build a mechanistic structure, a small-business owner would group jobs according to the company’s most basic operations, typically resulting in departments such as production and marketing. To build the divisional structure, the owner would first divide the company into small business units, called SBUs. These SBUs coalesce around a single product line, customer group or location. Each SBU usually organizes as a functional structure. Being mechanistic, the functional and divisional structures lack the creative potential and nimbleness of organic organizations.

Adaptable Structures

1. The two most organic structures are the network and team structures. The network is the loosest because it relies on external companies to provide the work. A small management nucleus coordinates a network of these independent suppliers. If conditions change, the company can take on or release suppliers. The team approach gives temporary employee teams the authority to oversee projects and company goals. Teams keep management — perhaps only the owner — apprised of progress. The owner forms and coordinates teams.

A functional organization structure is a structure used to organize workers. 3 min read

1. What Is a Functional Organizational Structure?
2. Advantages of a Functional Structure
3. Disadvantages of the Functional Organizational Structure
4. Who Is Best Suited for a Functional Organizational Structure?

Updated August 10, 2020: 

What Is a Functional Organizational Structure?

A functional organizational structure is a structure used to organize workers. They are grouped based on their specific skills and knowledge. It vertically structures each department with roles from the president to finance and sales departments, to customer service, to employees assigned to one product or service. Functional organizations contain specialized units that report to a single authority, usually called top management.

Each functional unit handles one aspect of the product or service provided such as:

• information technology
• marketing
• development
• research, etc.

They are referred to as "silos" because the function independently and have their own vertical management structure. Workers within each functional department communicate with each other exclusively, and then department heads communicate with each other. This structure works well in a stable environment that has continuous operations. The goal of a functional structure is to put together every informational and human resource necessary for one activity in a single place. The functional organizational structure helps organizations run their business and earn a profit.

Advantages of a Functional Structure

When employees who have similar skills and experiences are grouped together, it makes production more efficient and of a higher quality. Roles and tasks do not change very much so there is little time spent learning, and accountability is clear. Since the hierarchy is simple, employees know the one manager they are to answer to, instead of multiple people. This streamlines communication and reduces confusion among employees. Employees can feel confident about what they're doing because it is standardized. They are more likely to feel a loyalty to their department and the organization as a whole. This increases morale and work ethic, as there is more job security. There is a clear path of growth for employees which provides motivation, and they are more likely to be corporative with people in their department. A functional organizational structure provides a perfect environment for learning for new employees (especially new college graduates) to be taught the real-world application of theoretical information.

Disadvantages of the Functional Organizational Structure

Employees may find it boring to repeat the same task over and over, and become less enthusiastic over time. If promotions are not handled well, an employee may be discouraged if a lower-performing peer is promoted over them. Problems may arise among management if department heads are only focused on their department and do not communicate effectively with other departments. This can cause poor communication and "silos" that are too independent from one another. If employees and management are only loyal to their teams, there will be a lack of teamwork and coordination.

It is a rigid structure where changes, innovations, and flexibility can be difficult to implement. An employee in any department may lack knowledge of information about all other departments. Managers tend to make decisions without consulting the department first, which can lead to problems. A department can become too autocratic and put its goals above those of the organization as a whole. With so many specialists involved in a process, it is difficult to pin the blame for a specific product or service malfunction on any individual.

Who Is Best Suited for a Functional Organizational Structure?

Larger companies are better suited to use the functional organizational structure, especially ones that produce just a few types of goods or services. Smaller companies may not need the structure or may find it too constraining. For projects in which the depth of knowledge is more important than the breadth of information, a functional organizational structure is appropriate. For instance, a fundamental research and development program is well-suited to a functional organizational structure since the project can capitalize on the expertise of the department.

The functional organizational structure helps organizations run their business and earn a profit by grouping employees based on their skills and expertise. It provides a clear hierarchy and minimizes confusion among employees who may be unsure who they are to report to. It is an efficient way to run a business but can have drawbacks as it can lead to a lack of communication between departments and unenthusiastic employees.

If you need help with learning more about a functional organizational structure, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.

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