Class 12 Business Administration Notes · GSEB
Types of Organisation Structure
Types of Organisation Structure — formal versus informal organisation and the linear, functional, and matrix structures. GSEB Class 12 Commerce notes covering characteristics, formation, authority flow, and suitability of each type.
Last updated: 27 Oct 2026
Notes
Two Families of Organisation Structure
Notes — the key lines
Two families: formal (deliberately planned) and informal (naturally formed). Formal splits into linear, functional and matrix; informal is the shadow of formal. The family tree is the map for the next six sections.
Grows inside the formal structure; no formal chart can be drawn for it.
- Formal organisation provides the deliberately planned framework; informal organisation grows naturally inside it.
- The chapter treats formal and informal as complementary, not rival, structures.
Trap — Informal organisation is not a fourth formal type — it grows inside every formal structure.
Formal Organisation
Notes — the key lines
Formal organisation is deliberately planned to achieve predefined goals. Delegation of power runs from upper to lower levels; roles and authority are defined. It is large, stable, and uses formal communication only.
In order to achieve the predefined goals, the formal structure of relationships among persons and work is established, which is known as formal organisation. Linear and functional organisation are its types. Necessary powers are given so the person can perform certain responsibilities, and matters related to delegation of authority between superior officers are clarified.
The administrators form this formal structure very cautiously to achieve the desired goals.
The place assigned to employees is non-changeable or non-alterable. Seldom can there be change once the position is assigned.
Delegation of power is done by the superior officer and flows from the upper level to the lower level.
The organisation structure comprises a large size.
Because the formal structure is methodically planned, the relations among employees are particularly formed.
Communication is done only through a formal method. Informal communication has no place here.
Trap — Formal does not mean rigid by definition — the chapter’s criticism is lack of flexibility in practice, not in the definition.
Informal Organisation
Notes — the key lines
Informal organisation is the network of internal relations formed naturally. It rests on shared feelings, interests, values, habits and beliefs, with no formal planning. It is a shadow of formal structure: fast, small, ever-changing, universal, and hard to control.
It can be considered a shadow of the formal structure — a subordinate structure, not a rival one.
- The relations develop among people working inevitably together, flourish on informal grounds and are not formally founded — hence no formal or proper chart can be prepared for them.
- In modern times the informal communication structure is used widely: it enables industrial talk and discipline, and industrial disputes are lessened, so the structure is more popular.
This structure is informal. It develops from inter-relationships and is naturally formed when employees working together work for a commonly defined goal.
One similar kind of feelings, interests, values, hobbies, habits and beliefs play a role, and the informal structure comes into existence.
The informal structure is ever changing. When an employee leaves one group and joins another work group, a new informal structure is created or changed as per the change in work environment.
This structure is not only found in businesses. It is found everywhere there is informal organisation, in all kinds of human activity.
Communication done informally, through the oral process, is informal communication. It carries more opinions and fewer facts, but it is very fast.
The size of this structure is very small because it depends on individual relationships. There may be many such groups, but they are normally small.
No control can be maintained in this communication circle, because each person develops a circle with co-workers as per their needs.
This communication develops from the formal structure only, so it complements the formal structure.
Trap — Informal communication is fast but carries more opinion than fact — do not present it as more reliable.
Formal vs Informal — Side by Side
Notes — the key lines
Read the same rows across both columns: origin, authority, communication, size, control. Formal is planned and stable; informal is spontaneous and changing. They are complementary: informal fills the gaps formal cannot reach.
| Aspect | Formal Organisation | Informal Organisation |
|---|---|---|
| How it is created | Deliberately planned by administrators to achieve predefined goals | Forms on its own from human relations, without formal planning |
| Structure | Formal structure, formed very cautiously | Informal structure, developing from inter-relationships |
| Flexibility | Lacking flexibility; positions are non-changeable | Ever changing with the work group |
| Size | Large size | Normally small; many groups may exist |
| Relations | Particular relations formed by the planned structure | Based on feelings, interests, values, hobbies, habits, and beliefs |
| Communication | Only through formal methods | Informal oral communication; fast, more opinions than facts |
| Control | Formal control through the hierarchy | Lack of formal control; circles form as per needs |
Read the table row by row: the same attribute shifts as you cross from the formal column to the informal one.
Trap — “Complementary” does not mean equal — the informal structure still depends on the formal one.
Linear Organisation — The Army Structure
Notes — the key lines
Linear is the simplest and oldest type — the Army Organisation. Power is centralised at the top and flows in a straight line down. Each employee answers to one superior; the Board holds the greatest power.
Linear organisation is the most simple and ancient type of organisation. Since many years it has been used in the army, and so it is also known as the Army Organisation.
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Meaning
Centralisation of power is done at the top level, and the distribution of power and responsibilities runs in a straight line from top to bottom — hence the name linear organisation. Each employee is answerable to his or her superior authority. A higher degree of power sits at the top; a lower amount sits at the bottom. The person at the bottom level who receives orders is the subordinate.
Formation
The entire business unit is classified into different departments, and a separate departmental head is appointed for each section or area. Each head is answerable to the superior head of that area and is given all the necessary power for the department. Division is not done according to the work but according to departments — hence it is also known as departmental organisation.
The greatest power is seen with the Board of Director, who take policy-based decisions. The General Manager receives the necessary powers and is the main administrative head, ensuring that lower employees follow the tasks and decisions of the board. The chart divides into production, administrative and sales departments. Purchase, production or sales officers are appointed as per the important work of each department, and carry the entire responsibility of their sections. Supervisors, foremen and clerks work under such officers; workers work under the foreman. Power flows from top to bottom and responsibility flows from bottom to top. The structure is more favourable where the size of the organisation is small, the work area is limited, and problems of control and discipline are limited.
Trap — Linear means one reporting line, not one department — departments exist under it.
Functional Organisation — Work Before Department
Notes — the key lines
Functional organisation gives importance to work over department. Experts with specialised knowledge are both advisers and administrative heads. Work is divided by nature of work; the Chief Officer holds supreme power.
A work-based structure in which experts with specialised knowledge are given special responsibilities for a particular function, and distribution of work follows the nature of work rather than departments. Each specialist is responsible for one function, and the Chief Officer holds supreme power.
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Meaning
Linear organisation gives more importance to department than work — its greatest limitation. Keeping that limitation in mind, work-based organisation came into existence.
Linear organisation lacks specialised work because the stress is on departments, not functions. Administrators and officers in one unit have to perform many kinds of tasks, and all of them are not experts in every variety of work. Hence a structure formed in which experts with specialised knowledge are given special responsibilities in a particular unit is called functional organisation. For example, the personnel officer looks after recruitment, transfer and promotions of that unit.
Formation
Functional organisation gives special importance to work distribution and specialisation, so work is distributed by the nature of work rather than by department. A different specialist is appointed for each kind of work. Such experts are not only advisers; they are administrative heads, fully responsible for the task assigned. The purchase officer, for example, is fully responsible for all purchase-related work.
Supreme power rests with the Chief Officer. The unit can be divided into parts, each with its own list of activities assigned to different officers, and each officer can give orders to the employees under him. It must be ensured that not a single work remains unassigned and not a single work is assigned twice. The structure is more favourable in units where there is more variety of work.
Trap — Functional experts are not only advisers — they are administrative heads with real authority.
Matrix Organisation — Function Meets Project
Notes — the key lines
Matrix combines a functional structure with a project structure. Project managers are appointed per project and draw experts from work groups. Authority is double fold: the General Manager passes power to project heads, who act independently.
A modern organisation type formed by combining work-based and project-based structures, giving the organisation both specialised work benefits and project-management benefits. It is a multi-faced structure. The same expert answers to both a functional head and a project manager.
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Meaning
Matrix organisation is a modern kind of organisation with two different types of structure: one simple structure that forms part of decision making, and a second technical, problem-solving structure called the project structure. The combination of both results in matrix organisation, which involves work-based and project-based peculiarities. Specialised work needs get their benefit, and project-management benefits are obtained at the same time. The expert at an intersection therefore carries dual authority.
Design
Each project manager is given different work responsibilities, and as many project managers are appointed as there are projects. The project manager must complete the assigned project successfully and on time. Experts are drawn from different work areas and divided into groups — computer expert, research expert, manufacturing and creation expert, technical expert, and so on. Once the work is done, they return to their respective work areas.
The flow of authority is double fold: the General Manager from the upper level passes power to the project heads in a linear manner, and all project heads function independently, obtaining the experts they need from different work groups. This type of organisation is favourable where it is necessary to combine technology with functions.
Trap — Matrix does not remove the functional boss — the dual authority is the point of the structure.
Exam Questions
Exam Questions
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