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A company's organizational structure is a visual diagram that systematically shows the roles, authorities, and responsibilities assigned and arranged at different levels. It is the skeleton that helps determine how departments and individuals work together to achieve the common goals of the business.
In this structure, power and decision making can be organized in two main directions:
Centralized structure: Power is concentrated at the top management level, who make most of the decisions and closely control the work of the departments.
Decentralized structure: Decision-making power is distributed down to management levels and departments, allowing them to be more proactive and flexible in their work.
The choice between these two models depends on many factors and is a strategic decision, affecting the company's operational efficiency and adaptability.
This is the traditional and popular model, in which the company is divided into departments based on the specialized functions of each department, for example: Production, Sales, Marketing, Accounting, etc. Each department is headed by a manager, who is responsible for reporting to the top leadership of the company.
Advantage:
High specialization: Focus resources on specific areas of expertise, helping departments maximize their capabilities
Efficient and cost-effective: Allows companies to operate more efficiently by optimizing available resources and easily training specialized staff
Disadvantages:
Rigidity: This model lacks flexibility and can be slow to react to market changes.
Conflict and lack of cohesion: Departments tend to work independently, leading to lack of communication and cooperation, creating "siloed organizations" and internal conflict
This model divides the company into independent units based on the geographical location of operations. Each of these units will control its own resources and operate as a separate company to meet the specific needs of the local market.
Advantage:
Better customer service: Geographic divisions can make more independent, flexible decisions to meet the specific needs of customers in each region
Leveraging local resources: Allows companies to exploit the advantages of local human resources and markets, while easily monitoring performance in each region
Disadvantages:
Duplication of resources: Departments may duplicate each other's functions, causing waste of resources
Difficulty in centralized control: Decentralized decisions can lead to difficult control and internal competition between regions
For example: Multinational corporations such as General Electric, Coca-Cola or government agencies with extensive networks such as Hanoi Tax Department, Mai Linh Taxi Corporation
This is a hybrid model, combining elements of functional and project-based structures. In this model, employees may report to two or more managers, for example, a functional manager and a project manager.
Advantage:
High Flexibility: Enhances coordination and communication between departments, allowing for easier adjustment and allocation of resources to specific projects
Professional Development: Employees have the opportunity to work on a variety of projects, helping them expand their skills and develop professional knowledge quickly
Disadvantages:
Unclear responsibilities: Can cause conflicts of power and responsibility when employees report to multiple levels of management
Slow decisions: Decisions have to go through multiple levels, slowing down work progress.
This model has little or no middle management between the leaders and the employees. It gives greater autonomy and decision-making power to the employees, creating an open and flexible working environment. This model is often adopted by startups and small businesses.
Advantage:
Speed and efficiency: Decision-making is fast, fostering creativity and high adaptability
Cost Savings: Reduced management costs due to fewer levels of management
Disadvantages:
Ambiguous accountability: Can lead to a lack of clarity about authority and responsibility, making it difficult for employees to know who to report to
Difficult to scale: This model is difficult to maintain effectively when the company grows beyond its initial state.
To choose the right organizational model, businesses need to carefully consider the following factors:
Business Objectives and Strategy: The organizational structure should be a tool for the successful implementation of the business strategy. If the strategy focuses on market expansion, a geographic model will be effective. If the focus is on product innovation, a functional model may be more appropriate.
Size and stage of development: Startups often favor a flat model for flexibility and speed, while large corporations need a more complex structure to effectively manage a cumbersome apparatus.
Business Environment: In a stable environment, a rigid structure may work well. Conversely, in a competitive and rapidly changing environment, a business needs a flexible, decentralized structure to be able to react promptly.
Industry and technology characteristics: Manufacturing businesses may choose a functional model, while technology companies may adopt more flexible models, using high technology to simplify the management apparatus.
Corporate Culture and Human Resources: If the staff is highly skilled, self-motivated and creative, a decentralized or flat model will work well. Conversely, a team that requires close supervision will be better suited to a more centralized structure.
Alphabet (Google's parent company): A classic example of a divisional structure. Alphabet is the parent company that manages subsidiaries like Google Search, YouTube, Android, Google Cloud, and other experimental projects. Each of these subsidiaries operates independently with its own CEO and executive team, allowing Alphabet to effectively manage a diverse portfolio of businesses.
Spotify: The company has developed a distinctive agile organizational model, called the “Spotify Model,” that balances the autonomy of small teams with the coordination needs of a larger organization. The model uses the following units:
Squads: Cross-functional, autonomous teams that act as “mini-startups” focused on a specific feature.
Tribes: Groups of related Squads together to maintain cohesion.
Chapters: Groups of members with similar expertise to share knowledge and maintain quality standards
Guilds: Voluntary communities where members from different Tribes can come together to discuss a topic of interest to them.
Zappos: This company is famous for its adoption of the "Holacracy" model - a form of flat organizational structure, without the traditional hierarchy. This model empowers employees to manage and make decisions, promoting creativity and flexibility. However, the transition from a traditional structure to this model requires a major change in corporate culture.
Developing a company’s organizational structure is one of the most important strategic decisions a leader can make. Rather than adopting a trendy model, businesses need to carefully analyze factors such as goals, size, business environment, and human resources to find the most suitable model. A smartly designed organizational structure is not just a diagram on paper, but also a driving force that helps the company operate effectively, adapt flexibly to change, and achieve sustainable success in the future.
