Source: Image of org chart, box, line, arrow, images by Video Scribe, License held by Jeff Carroll. Image of McDonalds logo, Creative Commons, http://bit.ly/1lEv2cp; Image of Arthur Andersen logo, Creative Commons, http://bit.ly/1kS0gcr; Image of Google logo, Creative Commons, http://bit.ly/1w2OelF.
Hi, I'm Jeff. And in this lesson, we'll learn about the major types of organizational structures. So let's get started.
When it comes to organizational structure, there are some initial choices a company must make about the larger structure of a company. One choice is whether to have a centralized or decentralized organization.
A centralized organization is an organization that is arranged by a rigid architecture of employee command, where the top of the organization makes the decisions. For example, McDonald's is an example of a centralized organization. This is often chosen because this keeps production consistent among the various divisions. And in McDonald's case, helps guarantee an experience in one McDonald's store that is identical to all other McDonald's.
A decentralized organization is an organization that is arranged by a flexible architecture of employee command, where different managers throughout the organization make the decisions. Arthur Andersen is an example of a decentralized organization. The advantage to this structure is that individual groups can make fast and effective decisions based upon the local information available without relying upon another group.
The disadvantage is that processes and decisions can be inconsistent. And this can lead to issues where one group makes a poor decision that then reflects on the entire organization.
An organization must also decide what management structure will work best for their business. A tall organizational structure has many layers of reporting and management. And this type is more common for larger businesses. Tall organizational structures are often centralized. And each individual manager is given a limited span of control.
A single manager will often need to confirm decisions with the chain of command above. This clear chain of command results in very consistent behaviors across all divisions and helps eliminate surprises that can damage the finances or reputation of a company.
The chain of command is clear so everyone knows their areas of responsibility. However, since multiple individuals are consulted on each decision, there is a delay in decision making. Since information must pass up and down the organization, it is difficult for a tall organization to react quickly to changes in the environment.
For example, the military is a tall structure, though some of the smaller groups are shifting away from this. Alternatively, a organization can go with a flat structure, which has few or no levels of management.
This can be common in small businesses, especially when there is a single owner and few employees. Flat organizations are generally decentralized. And each individual is given a wide span of control to distribute responsibility away from the manager.
An organization with a flat structure can react quickly and creatively to new situations. Often, multiple options can be attempted in the time it takes a tall organization to make only one decision. This can reduce management costs. And employees can be more involved in decisions. And that will increase morale.
The disadvantages are the potential for confusion and a lack of specialization in individual divisions. Google, for example, is moving toward a flat organizational structure. Since, as a company, they focus on communicating information quickly and clearly between individuals, this makes sense for them as an organization. This will allow them to respond quickly as the internet evolves.
All right, nicely done. In this lesson, we learned about why an organization might choose a centralized or decentralized structure. And we talked about tall organizational structures and flat organizational structures, and the advantages and disadvantages of each.
Thanks for your time, and have a great day.