What is the relationship between organizational structure and organizational controls?

Your business's functions are the things it does – production, sales, marketing, research and billing, for example. The organizational structure defines the relationship and interactions between the parts of your business, and identifies how the chain of command runs through the different levels.

Tip

The relationship between organizational functions and structure is like a flow chart. You can set up your business structure around your organizational functions, but even if you don't, function and structure will influence each other.

Functional Structure Separates Departments

Most businesses adopt a functional organizational structure with a chain of command. In other words, different functions go into separate departments that report to department managers, who then report to someone higher up. If you adopt a functional structure, it has the advantage of clear lines of authority, with key decision-makers in each department who set the overall mission and tasks.

The structure allows each employee to concentrate on her particular mission. A functional structure for an organization is not without its drawbacks, however. You can end up with departments that don't talk to each other or cooperate well. A customer may get bounced from department to department if his problem doesn't relate to one particular function.

Divisional Structure Has Many Branches

A divisional organizational structure spreads functions across different branches: If you have different product lines, the division for each product line has its own functional groups such as marketing, R&D, sales and accounting. The advantage of this approach is that each division of the company has the personnel to carry out all necessary functions. In essence, each division can carry out its business operations more or less autonomously.

The drawback is that with employees in each division performing identical functions, you could end up with a lot of redundancy and inefficiency. For instance, managing five human resource operations, rather than a single, centralized operation, means duplication of functions, managements systems, policy development and so on.

Matrix Structure Provides Flexibility

Using a matrix structure in your business can give you greater flexibility in business functions than a more hierarchical organization. In a matrix structure, each employee works in a function-based department, such as marketing or finance, but they can be assigned to projects under different managers and teamed with employees who have different functions. This structure adapts organizational function to changing organizational needs. The drawback is that the chain of command in a matrix may become cloudy and conflicted.

Visualize With Organizational Charts 

If you or your staff have trouble visualizing a proposed structure, you can use an organizational chart to see it clearly. The New York and Erie Railroad developed the first organizational charts in the 19th century as a way to improve management efficiency. A chart shows the lines of authority and control running between different departments and levels of management. A well-designed chart will make it easy to see who makes decisions, who reports to whom and how your organization divides up its operating functions.

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Strategic Management: Concepts and Cases: Competitiveness and Globalization (12th Edition)

End Of Chapter

Case Discussion Questions

Chapter 11, End Of Chapter, REVIEW QUESTIONS, Exercise 1

What is organizational structure and what are organizational controls? What are the differences between strategic controls and financial controls? What is the importance of these  differences? 

Explanation

Organizational structure determines the authoritative relationships, processes of various activities, authority-responsibility relationships, and internal controls that are followed in a firm.

Organizational controls are guides a firm to achieve its objective through appropriate strategic planning and its implementation. Organizational controls may allow a firm to have an advantage in terms of better resource availability and infrastructure, which may provide a firm with a competitive edge.

In strategic controls, a firm focuses on its needs and requirements for the implementation and execution of various strategies. In financial controls, a firm evaluate the recent performances on the basis of past performances.

Strategic controls are largely based on subjective criteria. Whereas, financial controls are based on objective criteria.

It is highly important for a firm to understand the differences between the strategic and financial controls for the successful implementation and control of a strategy or evaluation for the achievement of the objectives of a firm.

Sample Response

Organizational structure defines the official relationships, methods, regulations, and the flow of decision-making that are followed in a firm.

Organizational controls are the guiding tools for making efficient use of a strategy. They form the control mechanism and enable a firm to have a competitive advantage.

Strategic control focuses on the implementation of strategy. Whereas, financial control evaluates the performance of a firm.

Strategic controls are subjective in nature. Whereas, the financial controls are objective in nature.

The dissimilarities in the financial and strategic controls are important because the dissimilarities help in determining the combination of strategies that should be implemented for the growth of a firm.

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