Benefits-Drawbacks

What Is Debt Financing ?

Debt financing is just opposite of equity financing.(in which capital is raised by selling equity instruments to the investors). It is a process of raising fund by selling debt instruments such as bond, credit cards, debentures etc. It is a borrowing of money and should be paid back with interest. In this post we are going to discuss some major pros and cons of debt financing.

Advantages Of Debt Financing

The main advantages of debt financing can be pointed out as follows:

1. Ownership And Control

One of the main advantages of debt financing is that it does not dilute ownership and control like in equity financing. Ownership, management control remains with the company because lenders have no right to manage the company.

2. Decreased Tax Obligation

Debt is considered as expenses in business. So, interest on loan is tax deductible. So, it minimizes the tax obligation.

3. No Share Of Profit

Another benefit of debt financing is that company can enjoy entire profit because lenders cannot claim on the profit of the firm.

4. Improves Credit Rating

If a firm pays loan and interest on time, it improves the credit rating of the business, It increases the reputation and image of the company.

5. Flexibility

It is more flexible than equity funding. There are several debt instruments such as loan, debenture, bills, credit card etc. Companies can choose best debt financing option as per the nature of the business.

Disadvantages Of Debt Financing

The main drawbacks or disadvantages of debt financing are as follows:

1. Impact On Cash Flow

As we know that certain amount of loan and interest should be paid in each month until the last installment, it may negatively impact cash flow. It may hamper daily operational activities because of lack of adequate working capital.

2. Complex Process

It is difficult to raise capital with debt financing. It requires strong credit history to attract lenders. So, it is not suitable for small and new business firms.

3. Need Of Collateral

Another disadvantage of debt financing is that company may need to provide collateral (fixed assets such as land, building, machinery) etc. to secure loan. If the company fails to repay the loan lenders can acquire the assets.

4. Strict Discipline

It requires strict discipline to repay the loan. If a firm fails to repay the loan on time it negativels affects the credit rating and image of the firm.

Also Read

Advantages and disadvantages of equity financing

5. Not Suitable

Debt financing is not suitable for the business having inconsistent cash flow because it make difficult to pay the loan and interest regularly.

Pros And Cons Of Debt Financing In Short

Pros

- Firms retain ownership and control

- It increases the credit rating of the firm 

- Firm can enjoy 100% profit

- It decreases the tax liability

- Liability is over after paying the loan

Cons

- It is risky and complicated than equity financing

- It may impact cash flow of the firm

- Firms may have to pay high rate of interest

- It is not suitable for small business

- It requires collateral to get loan

What Is Equity Financing ?

Equity financing (also called equity funding) is a process of raising capital by selling equity instruments like ordinary shares, preference shares etc. Companies issue share to investors to raise money for business. It is effective tool that helps to meet short-term or long-term obligation of the firm.

Advantages Of Equity Financing

The main advantages of equity funding can be pointed out as follows:

1. Less Risky

Equity financing is less risky method of financing than debt because firms do not require to repay loan and interest on the raised capital.

2. No Additional Burden

Another benefit of equity financing is that it does not suffer the company with financial burden like monthly repayment of loan and interest.

3. Opportunity To Grow

As we know that firms do not have to repay loan, so firms can invest more money to expand business. Therefore, it provides the opportunity to grow.

4. Raising More Fund

Equity financing can raise more capital than borrowing. So, it is more favorable option than debt financing.

5. Attract Investors

It can increase credibility and image of the company if the raised fund is invested properly. It helps to attract more investors and partners in the future.

Disadvantages Of Equity Financing

The main disadvantages of equity financing can be highlighted as follows:

1. Sharing Profit

One of the major drawbacks of equity finance is that company founders cannot enjoy 100 % profit because it should be share with the shareholders.

2. Costly Method

Equity financing is costlier than borrowing because of higher risk and no tax shield.

3. Sharing Ownership And Control

Another disadvantage of equity financing is that company should share ownership with the shareholders. So, it limits the power and control of founders.

Also Read

Advantages and disadvantages of debt financing

4. Possibility Of Conflict

Because of shared ownership, control and power there exists a possibility of conflict between investors and owners of the company.

Pros And Cons Of Equity Financing In Short

Pros

- It is less riskier than debt financing

- It avoids the financial burden of the firm

- It provides expansion and growth opportunity

- It can raise more capital than borrowing

- It lowers the credit problems

Cons

- It splits the ownership and profit

- It is complex and costly method of raising capital

- It may create conflict between shareholders and owners

- It lacks tax shield

- It is time consuming process

 What Is Decentralization ?

Decentralization is a type of organization set up in which authority and power is delegated to the middle and lower level management. It is just opposite of centralization where decision making authority is reserved in the top management. In this structure departmental heads, branch managers, section officers etc. can make routine decisions without consulting higher level managers. It is suitable for large sized and complex types of organizations because single management or authority cannot manage entire organizational activities.

Benefits Or Advantages Of Decentralization

Some of the notable advantages of decentralization can be expressed as follows:

1. Decreases The Workload Of Top Authorities

One of the main advantages of decentralization  is that it reduces the work burden of  top management because some of the managerial responsibilities, authority and power are delegated to the lower level authorities. So, it helps to minimize the load of top authorities.

2. Quick And Better Decision Making

In this type of organizational setup, decision making authority is delegated to the departmental heads who are closer to the level of operation. It helps to make quick and wise decisions. Prompt and better decision making helps to cope with the situation and solve the problems wisely and quickly. 

3. Facilitates Specialization

Highly qualified, skilled, experienced and specialist personnel are appointed as middle and lower level managers to manage and control different branches, departments and units. So, decentralization brings specialization in the organization.

4. Suitable For

This organizational setup is appropriate for the following types of organizations:

* Having large volume of production

* Organizations with several functional units and departments

* Organizations having large number of staffs

* Large sized organizations with adequate resources

5. Increased Motivation And Satisfaction

It gives freedom to the middle and lower level managers and subordinates to make decisions. It helps to enhance skills, efficiency and potential of the subordinates. It provides the opportunity for growth and development. Therefore, decentralization increases motivation, morale and job satisfaction.

6. Increased Productivity

Because of specialization, increased motivation and high employee morale, it helps to improve employee performance and operational efficiency. Better performance and high efficiency leads to increase in the productivity of the organization.

7. Better Supervision And Control

In decentralization, subordinates and supervised and controlled by the concern managers or departmental heads. Lower level managers have full authority to monitor and control their immediate subordinates. Therefore, it is possible to maintain better discipline and control in the decentralized organization.

Drawbacks Or Disadvantages Of Decentralization

Some of the major disadvantages of decentralization can be expressed as follows:

1. Complex And Expensive

This structure is more complex than centralization because of different branches, departments and different levels of management. It requires more capital and operational costs to manage decentralized organizations because of more operational activities, more employees and complex design. So, it is complex and expensive organizational setup.

      Also Read: 

Advantages And Disadvantages Of Centralization

Difference Between Centralization And Decentralization

2. Not Suitable

Decentralization is not appropriate for following types of organizations:

* Small organizations having limited volume of production

* Organization having less numbers of employees

* Organizations with less functional units

* Not suitable for specialized services

As we know that decision making power is delegated to the middle and lower level authorities in decentralization. If lower level managers are not capable of making wise decision, it may increase the risk of mismanagement and organization may have to bear huge loss.

4. Lack Of Coordination

Another disadvantage of decentralization is poor coordination. It is very difficult to maintain proper coordination between different functional areas and different levels of management because of its complexity. Due to the lack of coordination, there is a chance of conflict, misunderstanding and duplication of effort.

5. Communication Problem

Because of the coordination problem, it is difficult to establish better communication among departments, managers and subordinates in the organization. Lack of communication may create confusion in the workplace. Poor communication may hamper the efficiency and productivity of the firm.

Pros And Cons Of Decentralization In Short

Pros:

- It minimizes the burden of the top executives because responsibilities and roles are dispersed

- It promotes specialization, growth and diversification

- It is appropriate of large organizations with more resources and various operations

- It improves employee motivation and morale

- It facilitates prompt decision making

- It ensures the maintenance of better supervision, discipline and control

Cons:

- It is complex and costly structure

- It is not suitable for small firms with limited activities and resources

- It lacks proper coordination

- There is a possibility of conflict, misunderstanding and communication problem in the organization

- It lacks uniformity

 What Is Centralization ?

Centralization is a traditional type of organization set up in which power and authority such as decision making, planning, policy making, supervision, direction, resource allocation etc. are exercised by the higher level management. It is commonly practiced by small organizations having fewer resources, finance and employees. Managerial activities are handled by superiors and other members (lower level managers and subordinates) are responsible for operating activities.     

Benefits Or Advantages Of Centralization

Some of the notable advantages or centralization are as follows:

1. Simple Structure

This organizational structure is easy to set up and understand. Roles and responsibilities of each member is clearly defined and the subordinates are accountable for only one boss which helps to eliminate confusion, misunderstanding and duplication of work.

2. Cost Efficient

Centralized organizations requires less expenses, less resources and fewer number of employees because of single authority. Therefore, centralization is more cost effective than decentralization.

3. Suitable For

Centralization is suitable for the following conditions:

* It suits for small firms having less operational activities and fewer number of employees.

* It is suitable for those companies which cannot invest more capital and resources

* When subordinates are incompetent and require close supervision, direction and supervision.

4. Quick Decisions

Another advantage of centralization is that it allows quick decision making because of single authority and reservation of power in the top management. Managers can make decisions without consulting other members in the organization. Quick decisions are very useful in the time of crisis and emergencies.

5. Secrecy

Top level managers do not share official matters with subordinates in centralized organizations. So, internal and private matters can be kept confidential. Therefore, centralization ensures proper secrecy and privacy.

6. Better Quality Of Work

Because of clear chain of command, standardized system and better supervision in the workplace, employees' performance and efficiency will be improved. Improved performance leads to improve in the quality of work and productivity of the firm. 

7. Proper Control

As we know that centralization is exercised by small firms having less activities and fewer number of employees. So, it is easier for the management to maintain better control and discipline in the organization. 

Drawbacks Or Disadvantages Of Centralization

Disadvantages or constraints of centralization can be described as follows:

1. Over Burden To The Managers

In centralized organization structure, power and responsibilities are given to top level managers. So, managers have to handle entire organizational activities which may lead to overburden and they cannot give sufficient time for other important functions such as policy making, business expansion etc.

2. Not Suitable

Centralization is not appropriate for large organizations having various activities and more employees. It is also not suitable if the subordinates are skilled, educated and experienced because they do not need more guidance and instructions.

      Also Read: 

Advantages And Disadvantages Of Decentralization

Difference Between Centralization And Decentralization

3. Lack Of Specialization

Because of the sole authority and concentration of power in the center, it discourages specialization in the organization. Lack of specialization may lead to decrease in the performance and productivity of the firm.

Due to the lack of specialization, there is no scope of growth and development opportunity for the employees. It may decrease the motivation and morale of subordinates. Decreased morale may lead to decrease in job satisfaction and increase the rate of employee turnover.

5. Possibility Of Dictatorship 

Because of the bureaucratic management and concentration of power, there is a high chance of misuse of power and dictatorship in centralized organizations.

6. Lower Productivity

Due to the lack of specialization and strict control, employees may be dissatisfied. Employee dissatisfaction negatively affect their performance which leads to decrease in the productivity and profitability.

Pros And Cons Of Centralization In Short

Pros:

- It is simple and cost effective organizational structure

- It is suitable for small firms which cannot afford more investment

- It allows prompt decisions at the time of emergency

- It ensure strict secrecy and privacy 

- It ensures better quality of work because of proper supervision, monitoring and control

- There is a clear chain of command 

Cons:

- It increases the workload of the superiors

- It lacks specialization and division of work in the workstation

- Managers may misuse their power

- Employees' morale may be decreases due to the dissatisfaction

- There is no scope for growth and career development

- It is not suitable for large scaled organizations

What Is Democratic Leadership Style ?

A management system where subordinates are encouraged to take part in the decision making process is called democratic leadership style. Leaders allow the employees to give their views, ideas, suggestions and opinions while making decisions. This leadership brings specialization and promotes sense of team spirit in the workplace.

Benefits Or Advantages Of Democratic Leadership

The main advantages of democratic leadership style can be pointed out as follows:

1. Ensures Sound Decision

Ideas, suggestions and opinions of the members are considered as valuable inputs in decision making process. In democratic leadership, employees provide their suggestions and views to the leader which help to make better decision. Sound decisions help to solve complex problems.

2. Better Communication

Another advantage of democratic leadership is that it promotes open communication system in the organization. Because of two way communication, subordinates can share their feelings and thoughts freely with the leader and other members. It helps to build trust and sense of harmony in the organization.

3. Proper Utilization Of Human Resource

Employees can explore their capabilities because of the participative management. Management uses their skills and abilities properly to bring better results. Therefore, democratic leadership style ensures better utilization of employees' talents and skills which helps to improve their efficiency.

4. Increased Employee Motivation And Morale

Employees' contribution is respected in this management system. Their skills and abilities are highly appreciated. Subordinates feel valued when they are encouraged to take part in decision making process. Therefore, democratic leadership helps to increase motivation of the employees which lead to increase in morale and job satisfaction.

5. Higher productivity And Profitability

Democratic leadership style promotes specialization in the workstation. It helps to utilize available resources more effectively which increases the efficiency in the workplace. Increased efficiency leads to increase in the productivity and profitability of the firm.

This management system can be exercised in any business. It is suitable for both small and big organizations. It is more suitable where employees are competent and skillful.

7. Better Working Environment

Because of two way communication, sense of cooperation, motivation and participation, it creates better working environment in the organization. Good environment helps to increase performance that improves the quality of output.

Drawbacks Or Disadvantages Of Democratic Leadership

The main disadvantages of democratic leadership can be pointed out as follows:

1. Slow Decisions

One of the main drawbacks of democratic leadership is lengthy decision making process. Opinions and suggestions of all members should be considered while making decisions which is not suitable at the time of emergencies and crisis when quick response is required.

        Also Read: 

Advantages And Disadvantages Of Laissez Faire Leadership

Advantages And Disadvantages Of Autocratic Leadership

Difference Between Autocratic And Democratic Leadership

2. Not Applicable

It is suitable when employees are highly qualified, competent and self-motivated. It is not applicable if subordinates are incompetent and less experienced.

3. Lacks Secrecy

In democratic leadership, official matters are shared with the subordinates. So, confidential and internal organizational matters can be leaked by some employees. So, it lacks secrecy and privacy.

4. Difficult To Control

In this system, employees are treated like friends, in this situation it will be difficult for the managers to control them. It becomes complicated to maintain proper discipline in the organization.

Pros And Cons Of Democratic Leadership In Short

Pros:

- It facilitates participative decision making in the organization

- Open communication helps to make better superior subordinate relationship

- Because of specialization productivity and profitability can be improved

- It improves employee motivation which helps to decrease staff turnover

- This system can be applied in almost all types of firms

- It is useful for career development

- Subordinates' skills and talents are properly utilized

Cons:

- It is not suitable if subordinates are incompetent or unskilled

- long decision making process is not suitable at the time of crises

- It is difficult to maintain secrecy

- Leaders face difficulties to maintain better discipline

- It may lack responsibility and accountability

 What Is Autocratic Leadership Style ?

Autocratic or authoritarian leadership is a management style where a single supervisor or manager exercises full authority and power in the organization. Supervisors or leaders have absolute power (directing, supervision, controlling, decision making etc.) to control the entire organizational activities and subordinates.

Benefits Or Advantages Of Autocratic Leadership Style

The main advantages of autocratic leadership can be pointed out as follows:

1. Allows Quick Decision Making

Because of centralized authority, leader is a sole decision maker in this type of leadership style. He/she may make any decision without consulting others. So, it allows prompt decision making at the time of emergency and crisis. Quick decision helps the organization to cope with the frequent changes in the business behavior.

2. High Level Of Secrecy

Another notable advantage of autocratic leadership is secrecy and privacy. Managers do not share internal matters of organization with subordinates which eliminates the chance of leakage of important information.

3. Simple And Easy Style

This style is simple and can be easily understood by the employees because of proper separation of roles and duties of superiors and subordinates. They are clear about their jobs and responsibility because command flows directly from the boss to the lower level employees.

4. Better Discipline

Leaders establish strict supervision, monitoring and controlling in the workplace which helps to maintain better discipline in the organization.

5. Increased Productivity

Autocratic leaders provides suggestions and guidance to the employees directly which helps to improve efficiency and performance. Increased performance leads to increase in the productivity of the firm.

Autocratic leadership style is suitable for small organizations with less number of employees and fewer organizational activities. It is also useful when employees are less competent and need strong guidance and supervision. 

7. Clear Chain Of Command

Because of clear goals, properly defined roles and responsibility of the leader and subordinates, direct communication, there is a better chain of command in this style than other types of leadership style.

8. Useful For New And Incompetent Employees

In autocratic leadership, subordinates have to work as per the guidance and direction of the leader. So, it is useful for newly appointed, incompetent and inexperience employees to improve their skills and performance. 

Drawbacks Or Disadvantages Of Autocratic Leadership Style

The main disadvantages of autocratic leadership can be pointed out as follows:

1. Workload To The Superiors

One of the main drawbacks of autocratic leadership style is that power and authority is exercised by a single leader. He/she has the responsibility to handle entire organizational tasks and employees. This increases the workload and pressure to the leader that may decrease his efficiency, performance and quality of decisions.

        Also Read: 

Advantages And Disadvantages Of Democratic Leadership

Advantages And Disadvantages Of Laissez Faire Leadership

Difference Between Autocratic And Democratic Leadership

2. Negative Motivation

Autocratic leadership uses negative motivational techniques such as threat, punishment, demotion etc. to control the subordinates. It may decrease the morale of the employees.

3. Not Suitable For

It is not suitable for large and complex organizations with various functions and more employees because it lacks decentralization , specialization and division of labor in the workstation.

4. Lack Of Flexibility

Organization is totally dependent on one superior. Opinions, ideas and suggestions of other members are ignored by the leader. So, autocratic leadership style lacks flexibility.

5. High Employee Turnover

As we know that there is negative motivation and strict control in this leadership, employees may feel stressed and frustrated because of this uncomfortable working environment. So, they may leave that job at any time. Therefore, the rate of employee turnover is high in autocratic leadership.

6. Micromanagement and Dictatorship

Because of centralized authority, there is a possibility of micromanagement and dictatorship in the workplace.

7. No Utilization Of Creativity

Organization is totally dependent on the vision and working style of one superior and ignores the potential and creativity of the employees. So, it discourages proper utilization of human resources in the organization.

Pros And Cons Of Autocratic Leadership In Short

Pros:

- It facilitates quick decision at the time of crisis

- It is simple and easy to understand because of clear chain of command

- It ensures proper secrecy and privacy in the organization

- It helps to increase the performance of the employees which increases the productivity and profitability. 

- It increases the motivation of the leader

- It is very suitable for small organizations with few subordinates and limited functions

Cons:

- It is not suitable for big and complex organizational structures

- It is less flexible than other types of leadership style

- Skills, talents and creativity of employees are not properly utilized

- It increases employee turnover because of frustration and stress

- It increases the burden of superiors because of centralized authority

 What Is Committee Organization ?

An association of people which is formed to perform specific task or to make certain decision is called committee. It is very helpful to solve complex problems in the organization. It is a task force that brings highly qualified people together to achieve specific objective.

Benefits Or Advantages Of Committee Organization

The main advantages of committee can be pointed out as follows:

1. Encourages Specialization 

Committee is an association of highly qualified individuals having different skills, knowledge and abilities which is formed to perform specific function in the organization. Because of diversified knowledge and abilities, it brings specialization in the workstation. Specialization helps to simplify complex tasks and also helps to achieve better result.

2. Ensures Sound Decisions

Because of the participative management, ideas and suggestions of each member is considered while making decisions. Decisions are made after long discussion and by analyzing each and every possible alternatives. Therefore, it ensures better decision making and helps to select the most appropriate solution. 

3. Better Communication And Coordination

Another benefit of committee organization is that it helps to establish better communication between the members which promotes cooperation, coordination and sense of team-spirit in the workplace.

4. Exchange Of Idea

In committee, members or employees can share their knowledge and ideas to others as well as can get information and knowledge from others. So, employees can learn and enhance their skills.

5. Increased Motivation

Because of the participative decision making, learning and career development opportunity, committee organization helps to increase motivation and morale of the members.

6. Opportunity For Development

Committee helps to learn new skills, improve communication and also help to improve decision making power. So, it provides a platform for executive development. 

Drawbacks Or Disadvantages Of Committee Organization

The main disadvantages of committee can be pointed out as follows:

1. Waste Of Cost And Time

It requires adequate time and effort to form committee structure. It requires a lot of money for conducting meeting, for travelling and to hire specialist manpower. Therefore, committees are not suitable for small companies.

2. Difficult To Maintain Secrecy

Another drawback of committee organization is that it lacks secrecy and privacy. This structure is consist of several members of different background. So, it becomes difficult to maintain secrecy of internal matters.

       Also Read: 

Advantages And Disadvantages Of Matrix Organization

Advantages And Disadvantages Of Line Organization

Advantages And Disadvantages Of Functional Organization

3. Accountability And Responsibility Problem

In committee structure, all decisions are taken by the group collectively. So, individual member of the group is not accountable and no one wants to take responsibility for the mistakes.

4. Conflict And Misunderstanding

As we know that committee organization is an association of different people from different background, so there remains a chance of misunderstanding and conflict among the members.

5. Chance Of Domination

Some aggressive members in the committee may try to dominate the entire group. It may create conflict and may disturb the working environment.

Pros:

- It encourages specialization which helps to find better solution by simplifying the problem

- Better decisions can be made because of participative decision making process

- It improves the motivation and morale of employees

- Knowledge and ideas can be shared among the members

- Provides platform for executive development

- It ensures better communication and builds sense of team-spirit in the organization

Cons:

- It is costly and time consuming structure

- Whole organization may be dominated by few individuals

- Decision making process is very long which is not suitable for emergency situation

- Due to the lack of privacy and secrecy, internal matters of the organization may be leaked

- There is a possibility of misunderstanding and conflict between the members in the committee

 What Is Matrix Organizational Structure ?

Matrix structure is practiced by large sized organizations to perform different projects. It is consist of dual authority (functional and project management), in which subordinates are responsible for both project and functional managers. It is highly specialized and advanced organizational structure practiced by modern large companies.

Benefits Or Advantages Of Matrix Organization

The main advantages of matrix organizational structure can be pointed out as follows:

1. Optimum Utilization Of Resources

One of the main advantages of matrix organization is that it ensures maximum utilization of resources. Available manpower , equipment and machinery are shared properly among different divisions, projects and functional departments. Therefore, it helps to improve the performance and output by using limited resources.

2. Collaboration And Teamwork

Employees and specialists from different functional areas are brought together to improve the performance. This structure combines functional and project management which helps to make collaboration between different projects and departments. It also promotes the sense of team spirit in the workplace.

3. Improves Employee Motivation

Matrix organization promotes specialization, provides opportunity to gain knowledge and develop new skills to the subordinates. It helps to increase motivation, morale and job satisfaction.

4. Less Burden To The Management

This organizational structure follows democratic leadership and decentralization. Project managers and functional managers have the authority to manage and monitor operational activities and to make decisions. So, top level management gets sufficient time to deal with other issues in the organizations.

5. Better Communication

Matrix structures allows the flow of information and open communication between different divisions and projects. Better communication between employees and departments helps to avoid misunderstandings and also helpful in solving problems.

6. Flexibility 

It is more flexible and dynamic than other types of organizations. Employees and other resources can be deployed as per the requirement and changes can be made to cope with the changing environment.

7. Suitable For

This organizational structure is suitable for large sized companies which work for multiple projects and construction works.

Drawbacks Or Disadvantages Of Matrix Organization

The main disadvantages of matrix organizational structure can be pointed out as follows: 

1. Complex Structure

It is the most complex form of organization. Because of dual authority and various functional divisions and projects, it is difficult to understand, manage and to control.

2. Poor Chain Of Command

Because of multiple authority, staffs are responsible for both project and functional management. They have to obey the instructions of two managers. It may result in poor chain of command in the organization.

        Also Read: 

Advantages And Disadvantages Of Committee Organization

Advantages And Disadvantages Of Line Organization

Advantages And Disadvantages Of Line And Staff Organization

3. Costlier Structure

Matrix structure is costlier than other traditional types of organizations. It requires more expenses and resources due to multiple authorities, more paper work and higher remuneration for specialists and experts. Therefore, it is not suitable for small organizations.

4. Confusion And Conflict

If the roles and responsibilities are not defined properly, it may create confusion and misunderstanding between two managers. There is also a chance of conflict between different teams in the workplace.

Project works are performed by the collective efforts of the team. So, it is difficult to measure the performance and efficiency of individual employee.

6. Slow Decision Making

Prompt decision making is not possible in matrix organization. Instructions and suggestions of both authorities, specialists and team members are required to take any decision. So, the decision making process is longer than other types of structures.

Pros:

- It encourages effective use of limited resources in the workstation 

- It promotes coordination and teamwork

- It provides learning opportunity to the employees

- It practices specialization, democratic leadership and specialization

- It is flexible and dynamic in nature

- It minimizes the workload of top level management

- It establishes better communication system in the organization

Cons:

- It is complex and costly structure

- It is not suitable for small sized organization having limited resources and limited operations

- It ignores the rule of unity of command

- It suffers from slow decision making process

- Individual performance cannot be measured

- There is a possibility of confusion, misunderstanding and conflict between the authorities and teams.

 What Is Functional Organization ?

Functional organization is highly specialized structure in which organizational functions are divided into smaller group and different departments (such as production department, sales department, IT department, human resource department, finance department, research and development department etc.) are created to perform different activities. Each department is managed, supervised and controlled by highly skilled and capable departmental head or manager.

Benefits Or Advantages Of Functional Organizational Structure

The main advantages of functional structure can be described as follows:

1. Proper Work Division

In this structure, organizational functions are divided into small groups and assigned to different units and departments. Highly skilled and qualified departmental heads and employees are selected to perform the tasks which helps to increase the performance and output.

2. Encourages Specialization

In functional organizational structure, various departments are created to bring specialization in the workplace. Each department consists or specialist and and expert manager and qualified subordinates. Specialization helps to increase efficiency and productivity.

3. Large Scale Production

Because of division of work and specialization, operational speed will be increased which facilitates mass production. Large scale production minimizes the cost of production.

4. More Profit

Specialization helps to minimize errors and wastage in the production process. Large scale production lowers the cost of production. Decrease in wastage and cost leads to increase in the earning of the organization.

5. No Duplication Of Work

Organizational tasks are segregated properly and allocated to the related departments or units which helps to eliminate the duplication of work.

6. Better Control And Supervision

Functional organizational structure follows decentralization in which supervision and controlling activities are done by both departmental managers and top manager. So, proper discipline can be maintained in the organization.

7. Relief To The Management

Operational activities are handled, supervised and monitored by the departmental heads. So, workload of top level management is reduced and they can utilize time in other important activities such as planning and policy making.

8. Flexibility

Functional structure is more flexible than other types of organizations. Changes can be made as per the requirement without disturbing other organizational activities.

Drawbacks Or Disadvantages Of Functional Organization

The main disadvantages of functional organization can be described as follows:

1. Complex And Expensive Structure

One of the main drawbacks of functional structure is that it is more complex and difficult to understand. It requires huge investment to form this type of organization. Higher remuneration for specialists and experts increases the operating expenses. Therefore, it is complex and costlier than line structure and line and staff organization.

      Also Read: 

Advantages And Disadvantages Of Line And Staff Organization

Advantages And Disadvantages Of Matrix Organization

Advantages And Disadvantages Of Committee Organization

2. Not Suitable 

Because of complexity and requirement of more investment, this design is not suitable for small and medium sized organization having less resources.

3. Possibility Of Conflict

There is a chance of conflict between departments because of the lack of proper communication and poor coordination. 

4. Poor Unity Of Command

Because of multiple command system, employees are accountable for number of supervisors which may lead to poor unity of command. In this situation, it is difficult to maintain proper control and discipline in the organization.

5. Delayed Decisions

In functional organization, quick decision is not possible because top management should consult with various departmental heads and specialists to make any decision. So , organization may have to face difficulties at the time of emergency when prompt decision is required.

Pros:

- It promotes specialization and division of work 

- Workload of top management is reduced

- It improves the performance, productivity and profitability

- There will be no duplication of works

- It reduces mistakes and errors

- It is flexible in nature

- There is a greater scope of expansion

- It is suitable for big manufacturing organizations

Cons:

- It is complex, expensive and resource consuming structure

- It is not suitable for small firms and non-manufacturing organizations

- Quick decisions cannot be made at the time of emergency

- High chance of conflict due to the lack of proper communication and coordination

- It ignores the principle of unity of command

What Is Line And Staff Organizational Structure ? 

Line and staff structure uses two layers of authorities in the organization (line authority and staff authority). Staff authority is responsible for policy making and planning, and line managers are responsible for the execution of daily organizational activities.  It includes the positive sides and eliminates the limitations of line structure and functional structure. Therefore, it is a modified version of line and functional organizational structure.

Merits Or Advantages Of Line And Staff Organization

The main advantages of line and staff organizational structure can be pointed out as follows:

1. Most Suitable Structure

line organization is very simple type of structure and it does not practice specialization in the workplace. On the other hand functional organization is more complicated because the relation between authorities is not properly defined. But line and staff organization accepts the positive sides and overcomes the drawbacks of line and functional structures. Therefore, it is the most suitable form of organizational structure.

2. Promotion Of Specialization

In line and staff organization, staff authority is concerned with planning function and line authority concentrates on the execution of tasks with the help of functional specialists. So, it promotes specialization which helps to increase efficiency and productivity.

3. Better Decision Making

Expert advice and suggestions are considered while taking decisions that helps the functional managers to make sound decision.

4. Reduced Workload

Because of dual authority and specialization, there will be a lesser burden to both line and staff officers. So, managers can perform their jobs more effectively.

5. More Flexible

Line and staff organization is flexible than line structure and functional structure. New departments or units can be created, subordinates can be hired and authority can be modified as per the requirement. Because of the flexibility, it facilitates growth and expansion opportunity.

6. Scope Of Advancement

Because of variety of jobs and regular conduction of training and development programs, it provides opportunity for advancement to the subordinates. It helps to increase their skills and specialty. It also increases employee motivation and job satisfaction.

7. Suitable For Big Organizations

Line and staff structure is suitable for big organizations and business firms which have more resources, employees and variety of operations.

Drawbacks Or Disadvantages Of Line And Staff Organization

The main disadvantages of line and staff organization can be pointed out as follows:

1. Expensive Structure

Line and staff organization requires more resources (infrastructure, finance and employees) that other forms of organizations. More remuneration should be paid to the specialists and experts. More training and development cost is required to improve the performance of staffs. So, it is expensive type of structure.

        Also Read: 

Advantages And Disadvantages Of Line Organization

Advantages And Disadvantages Of Functional Organization

Advantages And Disadvantages Of Committee Organization

2. Not Suitable For Small Organizations

Because of dual authority, requirement of more cost and complexity, it is not suitable for small and medium sized organizations having limited capital and resources.

3. Conflict Between The Authorities

Because of the improper division of roles and responsibility between line authority and staff authority, there may be a confusion and misunderstanding among the officers. Confusion and misunderstanding create conflict between two authorities. It may create burden for the top management to manage or settle this issue in the organization.

4. High Employee Turnover

Conflict between line and staff authority may discourage specialists , experts and subordinates working in the organization. So, if the top management fails to maintain better coordination and harmony in the workplace, employees may quit the job. Therefore, there is a chance of high employee turnover in line and staff organization than other types of structures.

5. Communication Problem

This type of design may create communication problem in the organization. Dual authority creates confusion to the subordinates and makes difficult for them to understand whose instructions to be followed and whom to report.

Pros:

- It brings specialization in the workplace

- It minimizes the work load of both authorities

- It is helpful in maintaining proper coordination

- It is more flexible than other types of structures

- It improves decision efficiency because of of experts advice and suggestions

- There is a scope for advancement

Cons:

- It requires more operational costs than other organizational structure

- Not suited for small firms having less resources and fewer activities

- There is a high possibility of conflict and misunderstanding

- It may increase the rate of staff turnover