In any organizing effort, managers must choose an appropriate structure.

Structure refers to the designated relationships among resources of the management system. Its purpose is to facilitate the use of each resource, individually and collectively, as the management system attempts to attain its objectives.


An organizational chart is constructed in pyramid form, with individuals toward the top of the pyramid having more authority and responsibility than those toward the bottom.

The relative positioning of individuals within boxes on the chart indicates broad working relationships, and lines between boxes designate formal lines of communication between individuals.


The dotted line is not part of the organization chart but has been added to emphasize the chart’s pyramid shape. The locations of the positions also indicate broad working relationships.


Formal structure is defined as the relationships among organizational resources as outlined by Management. It is represented primarily by the Organization Chart.

Informal Structure is defined as the patterns of relationships that develop because of informal activities of organization members. It evolves naturally and tend to be molded by individual norms and values and social relationships.


Department is a unique group of resources established by management to perform some organizational task. The process of establishing departments within the management system is called DEPARTMENTALIZATION.


The most widely used basis for establishing departments within the formal structure is the type of work functions (activities) being performed within the management system.

Functions are typically divided into major categories like  marketing, production and finance, etc.,



Organization structure based primarily on product departmentalizes resources according to the products being manufactured. As the company grows and as their product range grows, it becomes increasing difficult for management to coordinate activities across the organization.

Organizing on the lines of products and product groups permits the logical grouping of resources across the organization.


Structure based primarily on territory departmentalizes according to the places where the work is being done or the geographic markets on which the management system is focusing.

The physical distances can range from quite short (between 2 points in the same city) to quite long ( between 2 points in the same state or different states or countries or continents).

As market areas expand and the work locations increase, the physical distances between places can make the management task extremely cumbersome. To minimize this problem, resources can be departmentalized according to the territory.



Structure based primarily on the customer establishes departments in response to the organization’s major customers.

This structure,of course, assumes that major customers can be identified and divided into logical categories.



Structure based primarily on manufacturing process departmentalizes according tot he major phases of the process used to manufacture products.



According to Shetty & Carlisle, the formal structure of a management system is continually evolving.

4 Primary forces influences this evolution:

  1. Manager
  2. Task
  3. Environment
  4. Subordinates

The evolution of a particular organization is actually the result of a complex and dynamic interaction among these forces.


Each manager perceives the organizational problem in a unique way. Naturally, knowledge, experience, background and values influence the manager’s perception of what the organization’s formal structure should be or how it should be changed.


Task includes the degree of technology involved in performing the task and the task’s complexity. As task activities change, a force is created to change the existing organization.


Environment include the customers and suppliers of the management system, along with existing political and social structures.


Sub ordinates include the needs and skill  levels of subordinates.

Changes in the environment or subordinate dynamics can effect a change in the organization.