Basic Organizational Characteristics

Organizations differ greatly in size, function, and makeup. Nevertheless, the operations of nearly all organizations—from the multinational corporation to a a newly opened delicatessen—are based on a division of labor, a decision-making structure; and rules and policies. The degree of formality with which these aspects of business are approached vary tremendously within the business world, but these characteristics are inherent in any business enterprise that utilizes the talents of more than one person.

Organizations practice division of labor both vertically and horizontally. Vertical division includes three basic levels—top, middle, and bottom. The chief function of top managers, or executives, typically is to plan long-term strategy and oversee middle managers. Middle managers generally guide the day-to-day activities of the organization and administer top-level strategy. Low-level managers and laborers put strategy into action and perform the specific tasks necessary to keep the organization operating.

Organizations also divide labor horizontally by defining task groups, or departments, and assigning workers with applicable skills to those groups. Line units perform the basic functions of the business, while staff units support line units with expertise and services. In general, line units focus on supply, production, and distribution, while staff units deal mostly with internal operations and controls or public relations efforts.

Decision-making structures, the second basic organizational characteristic, are used to organize authority. These structures vary from operation to operation in their degree of centralization and decentralization. Centralized decision structures are referred to as "tall" organizations because important decisions usually emanate from a high level and are passed down through several channels until they reach the lower end of the hierarchy. Conversely, flat organizations, which have decentralized decision-making structures, employ only a few hierarchical levels. Such organizations are typically guided by a management philosophy that is favorably disposed toward some form of employee empowerment and individual autonomy.

A formalized system of rules and policies is the third standard organizational characteristic. Rules, policies, and procedures serve as templates of managerial guidance in all sectors of organizational production and behavior. They may document the most efficient means of accomplishing a task or provide standards for rewarding workers. Formalized rules provide managers with more time to spend on other problems and opportunities and help ensure that an organization's various subsystems are working in concert. Ill-conceived or poorly implemented rules, of course, can actually have a negative impact on business efforts to produce goods or services in a profitable or satisfactory manner.

Thus, organizations can be categorized as informal or formal, depending on the degree of formalization of rules within their structures. In formal organizations, say researchers, management has determined that a comparatively impersonal relationship between individuals and the company for which they work is viewed as the best environment for achieving organizational goals. Subordinates have less influence over the process in which they participate, with their duties more clearly defined.

Informal organizations, on the other hand, are less likely to adopt or adhere to a significant code of written rules or policies. Instead, individuals are more likely to adopt patterns of behavior that are influenced by a number of social and personal factors. Changes in the organization are less often the result of authoritative dictate and more often an outcome of collective agreement by members. Informal organizations tend to be more flexible and more reactive to outside influences. But some critics contend that such arrangements may also diminish the ability of top managers to effect rapid change.