What’s it: A formal organizational structure is an organizational structure with clearly defined positions, duties, responsibilities, and authorities. Often, the formal structure is put on paper as an organizational chart. And organizations operate according to strictly defined and enforced rules and procedures.
The formal structure allows the organization to be more stable. Activities and operations are more coordinated with no ambiguity or confusion in performing roles. However, decision-making is often slow, especially when it involves a long chain of command. In addition, interpersonal relationships are rigid and do not accommodate psychological and social needs.
Why is a formal organizational structure important?
There are several reasons why a formal organizational structure is important. First, it allows for better management as the business gets bigger. Activities are becoming more and more complex. And businesses have more resources and employees to manage.
Formal structures are needed to unite various business activities, processes, and people. It formalizes their relationship to achieve the company’s goal. Authorities, roles, and responsibilities are clearly defined, minimizing possible deviations which could harm the business.
Second, the business direction is clearer and more integrated. Business documents goals through vision and mission. Then, it is broken down into lower-level goals and targets, ranging from departments to individuals. Thus, the respective goals and targets ultimately facilitate the business to fulfill its objectives.
Third, the formal structure clarifies the authority and responsibility between units and positions within the organization. That can lead to better communication and decision-making.
Fourth, the formal organizational structure brings stability. Businesses regulate operations and activities through procedures, policies, and rules. Thus, work and business activities continue, even when some people leave, such as top managers.
What are the characteristics of a formal organizational structure?
Within a company, the organization includes several units and positions. They are mutually integrated and coordinated to achieve organizational goals and objectives. And, under a formal structure, it is all formally regulated and standardized. Everyone works according to rules and procedures.
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Several key points describe the characteristics of formal organizational structures.
Goals. Formal organizations document it in writing, for example, in a vision and mission statement. And each unit, position, and person work together to achieve those goals.
Organizational structure. Formal organizations have a clear structure. They describe the structure within the organization into a chart, called an organizational chart. It describes how the organization is divided into divisions and positions and how they are interconnected.
Level of hierarchy. Organizations define a clear level of hierarchy. It codifies the relationships between different positions in the organization, from top to bottom. Each position has different authorities, roles, and responsibilities.
Authority. The formal organization defines and assigns authority to each position. Each cannot act outside his authority. Take an example in decision making. In certain organizational structures, it flows from top to bottom and not the other way around.
Chain of command. The formal organization governs how the authority and responsibilities between positions should be exercised. It is usually pyramidal in shape. The higher position is responsible for the actions and decisions made by the lower position. In addition, the lines of communication within the organization follow the chain of command.
Procedures, rules, and policies. Formal organizations are highly dependent on rules, procedures, and policies to operate. They are usually in writing and become the basis for managing all activities and functions within the organization. Therefore, everyone must adhere to them strictly, leaving little latitude for interpretation.
Member management system. The organization has a system in place for replacing members. For example, the selection is not based on political relations or kinship but on qualifications.
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Likewise, the organization establishes a succession path for each position. For example, promotions are based on seniority and work performance. Such a system allows the organization to survive over time and not depend on any particular individual.
What is an example of a formal organizational structure?
Companies and schools generally adopt a formal organizational structure. Companies structure the organization into a chart, which maps out positions and units within the organization, including the relationships between them. It lays out the roles, authorities, and responsibilities of each.
In general, as businesses get bigger, they need more formality in their structure. This is because the formal structure makes the business more organized and coordinated.
In contrast, small businesses, such as sole proprietorships, come with more informality. How activities, resources, relationships between units and employees are organized depends on the owner’s needs. And, it is often not formally regulated through written rules, policies, or procedures.
People in small businesses often work because of personal relationships. For example, they may be neighbors or friends of the owner. Thus, the working relationship often does not prioritize professional relations rather kinship or friendship relations. And such interpersonal relationships help them feel more informed and connected to what’s going on in the business.
What is the difference between formal and informal organizational structures?
Formal organizations live by rules, procedures, and policies. Each member has clearly defined roles and responsibilities. And processes within the organization are carefully documented, from organizational charts to job descriptions specific to each position.
Meanwhile, the informal organizational structure operates through interpersonal relationships when people interact. Organizations operate on member-developed systems, often without involving written rules. Likewise, there are no clearly defined authorities, roles, and responsibilities for each member.
Informal structures often grow within the formal organizations such as companies. For example, employees may form friends, hobbies, and other groups. And, their day-to-day interactions may differ from what is written on company paper.
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What are the advantages of a formal organizational structure?
Systematic work. Formal organizations divide activities into units and positions. Each has a specific role and purpose. Such an arrangement allows the organization to function systematically and smoothly.
More coordinated. Formal organizations clearly describe the units and positions, including their respective roles. It allows everyone to move in the same direction towards achieving goals.
Clear authority. Formal organizations have an established chain of command. It lays out the lines of authority and decision-making power. Thus, the relationship between subordinates and superiors is clearly defined.
No ambiguity or confusion. Each person, job position, and department has clearly defined roles. Therefore, no ambiguity or confusion is in carrying out the role. Moreover, it minimizes wastage by eliminating overlapping roles.
More stable. Organizations operate according to rules and procedures. As a result, the behavior and relationships among members are predictable. And, the organization will continue even when some key people such as directors leave.
Professional relationship. People interact with each other because of work. And, they put more emphasis on professional relationships than interpersonal relationships such as kinship.
What are the disadvantages of a formal organizational structure?
Slow decision-making. Everyone can not make decisions arbitrarily. Rather, it must flow through the chain of command. As a result, decisions might not be made immediately when problems arise and by the directly involved people.
And, as organizations become larger, decision-making can become slower. That’s because it involves long and complex layers.
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Rigid organization. People must be disciplined in carrying out their roles. They must comply with applicable procedures or rules without exception. For example, those in lower positions cannot act recklessly and must obtain the approval of their superiors.
Ignoring social needs. Formal organizations are only concerned with work. They do not attach importance to psychological and social needs. And maybe they ignore the human connection, creativity, or talent. What matters is the job is done and done right.
Higher cost. The way the organization is run can lead to higher costs. For example, businesses divide organizations into departments or units, each needing a director, manager, and coordinator. And, that’s not the case with informal organizations because they don’t need such an arrangement.
What to read next
- Organizational Structure: Why It Matters and What are the types
- Tall Organizational Structure: Characteristics, Advantages, Disadvantages
- Flat Organizational Structure: Characteristics, Advantages, Disadvantages
- Organizational Structure By Hierarchy: Advantages, Disadvantages
- Organizational Structure by Function: Advantages and Disadvantages
- Organizational Structure By Product: Advantages and Disadvantages
- Organizational Structure by Region: Advantages and Disadvantages
- Organizational Structure by Customers: How It Works, Advantages, Disadvantages
- Matrix Structure: How It Works, Advantages, Disadvantages
- Horizontal Organizational Structure: Characteristics, Advantages, Disadvantages
- Vertical Organizational Structure: Characteristics, Advantages, Disadvantages
- Shamrock Organization: How it Works, Advantages and Disadvantages
- Project-Based Organizational Structure: Strengths and Weaknesses
- Centralized Organizational Structure: Advantages, Disadvantages
- Decentralized Organizational Structure: Advantages, Disadvantages
- Formal Organizational Structure: Characteristics, Advantages, Disadvantages
- Informal Organizational Structure: Characteristics, Advantages, Disadvantages
- Multidivisional Structure: Importance, How it Works, Pros, Cons
