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Organizational Structure

Decentralized

President

Manager Manager Manager Manager

Staff Staff Staff Staff Staff Staff Staff Staff Staff Staff

Figure 5

performs a specific type of work, such as marketing, tralized structure, line-and-staff employees have limited
finance, accounting, and human resources) but may find authority to carry something out without prior approval.
themselves working on projects managed by members of This organizational structure tends to focus on top-down
another department. Organizations arranged according to management, whereby executives at the top communicate
project are referred to as matrix organizations. Matrix by telling middle managers, who then tell first-level man-
organizations combine both vertical authority relation- agers, who then tell the staff what to do and how to do it.
ships (where employees report to their functional man- Since this organizational structure tends to be fairly
ager) and horizontal, or diagonal, work relationships bureaucratic, employees have little freedom. Centralized
(where employees report to their project supervisor for the organizations are known for decreased span of control—a
length of the project). “Workers are accountable to two limited number of employees report to a manager, who
supervisors—one functional manger in the department then reports to the next management level, and so on up
where the employee regularly works and one special proj- the ladder to the CEO (Figure 4).
ect manager who uses the employee’s services for a varying
period of time” (Keeling and Kallaus, 1996, p. 43).
DECENTRALIZATION
Since employees report to two separate managers, this Because individual creativity can be stifled and manage-
type of organizational structure is difficult to manage— ment costs can be greater in a centralized organization,
especially because of conflicting roles and shared author- many organizations continue to downsize into a more
ity. Employees’ time is often split between departments decentralized structure. Decentralization seeks to elimi-
and they can become easily frustrated if each manager nate the unnecessary levels of management and to place
requires extra efforts to complete projects on similar time-
authority in the hands of first-line managers and staff—
lines.
thus increasing the span of control, with more employees
Because the matrix structure is often used in organi- reporting to one manager. Because more employees are
zations using the line-and-staff setup, it is also fairly cen- reporting to a single manager than before, the managers
tralized. However, the chain of command is different in are forced to delegate more work and to hold the employ-
that an employee can report to one or more managers, but ees more accountable. Downsizing has also helped to
one manager typically has more authority over the change the flow of communication, so that top manage-
employee than the other manager(s). Within the project ment hears staff concerns and complaints in a more direct
or team unit, decision making can occur faster than in a manner and management has a more hands-on approach.
line-and-staff structure, but probably not as quickly as in The hands-on approach involves less bureaucracy, which
a line structure. Typically, the matrix structure is more means there is a faster response to situations that demand
informal than line-and-staff structures but not as informal immediate attention. This structure also takes advantage
as line structures (Figure 3). of bottom-up communication, with staff issues being
addressed in a timely manner.
CENTRALIZATION The restructuring generally takes place at the mid-
Organizations with a centralized structure have several management level. Because some middle managers have
layers of management that control the company by main- lost their jobs, been laid off, or simply taken advantage of
taining a high level of authority, which is the power to early retirement and severance packages, their positions
make decisions concerning business activities. With a cen- have been phased out, thus helping to reduce unnecessary

ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION 571