Question

1. Which type of organizational structure does Saudi Aramco currently have? Functional structure, divisional structure, or matrix structure? Provide evidence.

(Question is not based on a case, but in general as of today for Saudi Aramco.)

Answer 1

Ans :  Saudi Aramco currently have and follow  Matrix Organizational Structure.

An organizational structure is a system that outlines how certain activities are directed in order to achieve the goals of an organization. These activities can include rules, roles, and responsibilities.

The organizational structure also determines how information flows between levels within the company. For example, in a centralized structure, decisions flow from the top down, while in a decentralized structure, decision-making power is distributed among various levels of the organization.

Having an organizational structure in place allows companies to remain efficient and focused.

KEY TAKEAWAYS

• An organizational structure outlines how certain activities are directed to achieve the goals of an organization.
• Successful organizational structures define each employee's job and how it fits within the overall system.
• A centralized structure has a defined chain of command, while decentralized structures give almost every employee receiving a high level of personal agency.

Types of Organizational Structures

Traditional organizational structures come in four general types – Functional, Divisional, Matrix and Flat .

Functional Structure

The first and most common is a functional structure. This is also referred to as a bureaucratic organizational structure and breaks up a company based on the specialization of its workforce. Most small-to-medium-sized businesses implement a functional structure. Dividing the firm into departments consisting of marketing, sales, and operations is the act of using a bureaucratic organizational structure.

Divisional or Multidivisional Structure

The second type is common among large companies with many business units. Called the divisional or multidivisional structure, a company that uses this method structures its leadership team based on the products, projects, or subsidiaries they operate. A good example of this structure is Johnson & Johnson. With thousands of products and lines of business, the company structures itself so each business unit operates as its own company with its own president.

Flatarchy Structure

Flatarchy, a newer structure, is the third type and is used among many startups. As the name alludes, it flattens the hierarchy and chain of command and gives its employees a lot of autonomy. Companies that use this type of structure have a high speed of implementation.

Matrix Structure

A matrix structure combines elements of the functional and divisional models, so it’s more complex. It groups people into functional departments of specialization, then further separates them into divisional projects and products.

In a matrix structure the team members are given more autonomy and expected to take on more responsibility for their work. This increases the productivity of the team, fosters greater innovation and creativity, and allows managers to cooperatively solve decision-making problems through group interaction. This type of organizational structure takes lots of planning and effort, making it appropriate for large companies that have the resources to devote to managing a complex business framework.

In the matrix structure of the organization, all the regional offices have functional departments that report directly to the respective regional department at the head office. The regional offices have a regional manager who coordinates the operations in that region and reports directly to the Chief Executive officer. The Saudi Aramco's present organization structure is as follows:

There are several reasons why the Saudi Aramco has its current organization structure. One of the reasons behind the matrix structure of the organization is the complexity of the global petroleum and chemicals industry and the business environment.

The industry is quite complicated due to the interaction with different cultures, political situations and legal frameworks, different levels of technology in different regions and different economic conditions hence a matrix organization structure is necessary to manage all the dynamics.

In addition, the organization structure adopted by Saudi Aramco is most suitable for its business since the organization is at maturity level. The important factors of the organization are to enhance efficiency in its operations and maintain its market share. A flat structure is thus ideal in order to ensure fast decision-making.

The main aim of developing an organization structure is to increase effectiveness of an organization and thus enhancing the competitiveness of an organization. Effectiveness is described as the extent of attainment of organizational goals hence an organizational structure is effective if it helps an organization to achieve its organizational goals.

In order to discuss effectively the organization structure of the Saudi Aramco, it is good to have an understanding of the strategies of the company and the strategic goals of the company. The major strategic objective of the company is to maximize profits through provision of customer value.

This has some objectives that include operating under low cost, focusing on some markets, conducting market research to understand the market needs and expanding of operations into new markets. The strategies used by the company are thus consolidation of existing markets, strategic human resource management, efficiency in operations and expansion into new markets, among other strategies.

The organization structure of Saudi Aramco plays a big role in attaining the organizational goals and objectives. The matrix structure has enhanced communication across departments and across all hierarchies. This is good since it leads to coordination hence efficiency in the organization.

It is also a better way to achieve coordination and motivation of employees, which is a strategic move of the company. Using this structure, the Saudi Aramco is able to understand the market requirements of each region hence the ability to consolidate operations in those regions.

The organization encourages decentralized decision making, which has led to autonomy of departments in decision-making. Organizational structure, therefore, gives an organization the ability of attaining the organizational goals and objectives.

The company measures the effectiveness of its strategies by measuring the attainment with the targets made. One major measure of the effectiveness of organization structure is using profitability as reported in the financial statements. These are compared with the reports for previous years and with the reports of other companies in the same industry.

This provides an insight into the performance of the company. The effectiveness of an organization structure is therefore measured through the ends focus of the effect on strategic goals.

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