Business Strategy
One of the most important factors influencing the appropriateness of different organizational structures is the business strategy. Matching organizational structure to the business strategy leads to higher firm performance.
B. External Environment
Rapidly changing environments require more flexible structures to deal effectively with the constant changes. Firms facing a highly differentiated environment usually create different business units to best serve each market segment.
C. Organizational Talent
A third factor influencing organizational structure is the nature of the organization's talent. For example, a flexible structure is more appropriate if highly skilled workers need to work in flat, team-based structures to get the work done most effectively. Advertising and marketing firms are often organized into teams.
D. Organizational Size
An organization's size also influences its structure. Smaller organizations tend to be less bureaucratic than larger firms. Larger organizations tend to have greater specialization and departmentalization, greater hierarchy, and more rules than do smaller firms.
Behavioral Expectations
A fourth important factor influencing organizational structure is the organization's expectations of how employees should behave, and what attitudes it wants to encourage or suppress. This decision is based in part on the company's values.
Production Technology
A fifth factor influencing organizational structure is the organization's technology, or primary production system.
When a firm uses unit production, it produces in small batches or makes one-of-a-kind custom products. Employees' talents are more important than the machines being used, and it is difficult to specify rules and procedures in advance. In this case, a flat structure with a low managerial span of control is most appropriate.
When a firm uses mass production, it makes large volumes of identical products, typically using assembly lines and machines. In this case, a tall, bureaucratic structure with a large managerial span of control would be appropriate.
When a firm uses continuous production, machines constantly make the product and employees monitor the machines and plan changes. At the bottom of the organization, continuous production requires a mechanistic structure and low levels of supervision because machines do most of the work. The structure of a firm using continuous production is often tall and thin, or even an inverted pyramid.
Organizational Change
As organizations change their strategies and adapt to changing environments, they often modify and change their structures to support the changes.