Designing and redesigning the organization in response to internal and external changes is a key managerial function. Organizational design is the process of selecting and managing aspects of organizational structure and culture to enable the organization to achieve its goals. One of the most important outcomes of organizational design is organizational structure, or the formal system of task, power, and reporting relationships.

Organizational structure is the core of what coordinates, controls, and motivates employees to cooperate toward the attainment of organizational goals. When the organizational structure is aligned with organizational needs, it results in greater organizational efficiencies and less conflict.

An organization chart is a diagram of the chain of command and reporting relationships in a company. As organizations grow, they often create multiple organization charts for each major division or functional area. In addition to illustrating the chain of command, organizational charts show the division of labor, which reflects the degree to which employees specialize or perform a variety of tasks as generalists.

The number of people reporting directly to an individual is that person’s span of control (some experts call this the span of management). When an organization creates a hierarchy, it outlines supervision relationships by giving some employees authority over others. Centralized organizations concentrate power and decision-making authority at higher levels of the organization. In decentralized organizations the authority for making decisions affecting an organization is distributed.

Organizational structure has a significant impact on the culture, effectiveness and performance of an organization.

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