9 Types of Organizational Structures Every Business Should Consider (2023)

Choosing the best organizational structure for your company, department, or team is like choosing a new car.

At the most basic level, you're always looking for something useful when you're on the go - something that will get you (and your passengers) from A to B with ease.

But beyond that, there are many options to consider. Automatic or manual? All-wheel drive or two? Built-in GPS? leather interior? flux capacitor? (Only if you driveTo travel to the past, Naturally.)

In the world of organizational structures, you have choices like chain of command (long or short?), span of control (broad or narrow?), and centralization (centralized or decentralized decision-making?), to name a few.

Organizational structures can be driven by functions, markets, products, regions, or processes, and can serve companies of specific sizes and industries.

What does organizational structure mean? Do you even need that as a manager? As your company grows, the organizational structure can also be useful for new employees to learn who manages which processes in your company.

Then, when you need to rotate or change leadership, you can visualize how workflows work by customizing org charts.

Put simply, an organizational structure is like a map that simply explains how your company works and how its roles are structured.

Four basic elements of organizational structure

The organizational structure usually consists of four main elements; You can add more building blocks or components depending on your business needs.

Either way, make sure you consider the following essentials:

command path

Your chain of command is all about delegating tasks and approving work. Through the organizational structure, you can determine how much "risermust have a specific department or division. In other words, who is telling whom what to do? And how are problems, requests and suggestions communicated up and down?

departments

Departments are one of the most important elements of your organizational structure. It connects your teams with similar roles and responsibilities and allows you to understand how each department is connected.

Scope of control

Your area of ​​control can reflect two things: who reports to the manager... and what the department's responsibilities are. A defined scope of control not only avoids duplication of work in different teams, but also helps to identify gaps in the structure.

centralization

Centralization describes where decisions are ultimately made. Once the chain of command is established, consider which people and departments influence each decision. The company may tend towards centralization, with final decisions being made by only one or two entities. or decentralized, where final decisions are made within the team or department responsible for implementing that decision.

You may not need an organizational structure right away, but the more products you develop and the more people you hire, the more difficult it becomes to run your business without this key chart.

Below we look at how these components can be combined to create different types of organizational structures. We also look at the pros and cons of different structure types so you can assess which option is best for your company, department, or team. let's dive in

Mechanistic and organic organizational structures

Organizational structures fall on a spectrum, with "machine" at one end and
"Organic" on the other hand.

See the diagram below. As you probably guessed, mechanistic structure represents the traditional top-down approach to organizational structure, while organic structure represents a more collaborative and flexible approach.

Here's a breakdown of the two ends of the structure spectrum, their pros and cons, and which types of businesses are right for them.

Mechanistic structure

Mechanical structures, the so-calledbureaucratic structures, are known for their narrow span of control as well as high centralization, specialization, and formalization. They are also fairly strict about which specific departments are designed and approved for the company.

This organizational structure is much more formal than the organic structure and uses specific standards and practices to guide every decision made by the company. And while this model increases employee accountability for their jobs, it can become a barrier to the creativity and agility a company needs to keep up with random changes in the marketplace.

While the mechanistic structure sounds intimidating and inflexible, the chain of command, long or short, is always at the ready in this model. As the company grows, it needs to make sure everyone (and every team) knows what's expected of them. Teams collaborating with other teamsif necessaryWhile this can get the company moving in the early stages, sustaining that growth -- with more people and projects to follow -- will eventually require some policy action. In other words, keep a mechanical structure in your back pocket... you never know when you're going to need it.

organic structure

Organic structures (also known as "flat" structures) are characterized by a broad spectrum of control, decentralization, little specialization, and loose division into departments. What's that supposed to mean? In this model, multiple teams can respond to one person and take on projects based on their importance and the team's capabilities—rather than what the team was designed to do.

As you probably know, this organizational structure is much less formal than mechanistic and requires a more ad hoc approach to business needs. This can sometimes make it difficult to decipher the chain of command, long or short. This allows managers to give the green light to some projects more quickly, but upsets the division of labor within the project.

Still, the flexibility that an organic structure allows can be extremely useful for a company navigating a rapidly evolving industry or simply trying to stabilize after a difficult quarter. It also gives employees the opportunity to try new things and advance professionally, thereby strengthening the company's workforce in the long term. Diploma? Startups are often ideal for an organic structure as they are just trying to gain brand awareness and get started.

Let's now examine the more specific types of organizational structures, most of which are based on more traditional,mechanisticside of the spectrum.

Depending on the size of the company and its goals, the organizational structure of the team varies. Each type has its pros and cons; However, establishing a clear organizational structure generally offers an advantage. It helps employees understand their role in the organization and allows them to manage expectations and goals.

In order to be successful, a company must have an organizational structure. There are different types of organizational structures that are commonly used by businesses. We will discuss nine of them below.

1. Functional organizational structure

Functional structure is one of the most common types of organizational structure and divides the organization into departments based on common tasks.

For example, an organization with a functional organizational structure would group all marketing employees in one department, all sales employees in a separate department, and all customer service employees in a third department.

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The functional structure enables a high degree of specialization among employees and is easily scalable as the organization develops. This structure is also mechanistic - which can hinder employee development - placing employees in skill-based departments can still allow them to delve into their area of ​​expertise and find out what they are good at.

Unpleasantries

• A functional structure can potentially create barriers between different functions - and can be ineffective if an organization has many different products or target markets.
• Barriers that arise between departments can also limit employees' knowledge of and communication with other departments, particularly those whose success depends on other departments.

Advantage

• A functioning organization increases productivity, ensures stability and increases accountability.
• In addition, departments that employ people with similar skills and knowledge can focus on their specific roles in their respective fields.
• Because roles and responsibilities rarely change in this exemplary organizational structure, departmental employees can continuously work on similar tasks and improve their skills.

The long-term development of the functional organization also takes place via the management. Gives employees a chain of command. Leads communication between the team and holds the team accountable.

2. Product-based divisional structure

A departmental organizational structure is made up of many smaller functional structures (ie each department within a departmental structure may have its own marketing team, sales team, etc.). In this case, it is a product-based departmental structure, with each department in the organization dedicated to a specific product line.

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This type of structure is ideal for companies with many products and can help shorten product development cycles. This allows small businesses to quickly come to market with a new offering.

Unpleasantries

• Scaling within a product-based departmental structure can be difficult.
• The organization may end up needing duplicate resources as different departments try to develop new offerings.

Advantage

• Companies and their employees can experience the advantages of a product-oriented divisional structure.
• If one department performs poorly, this does not automatically affect the entire organization.
• Because of their separation, fissures can thrive (or collapse) simultaneously. This system allows companies to limit their risk.

3. Market Split Structure

Another variation of the vertical organizational structure is the market structure, where the divisions of the organization are based on markets, industries, or customer types.

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A market-based structure is ideal for an organization whose products or services are unique to certain market segments, and is particularly effective when that organization has advanced knowledge of those segments. Through this organizational structure, the company is always aware of changes in the demand of different customer segments.

Unpleasantries

• Too much autonomy within each marketing team can result in departments developing systems that are mutually incompatible.
• It can also happen that departments unintentionally duplicate activities that other departments are already dealing with.

Advantage

• Because this organizational structure focuses on specific market segments, it gives autonomy to each department.
• Business units operate separately, allowing employees to work independently and focus on the needs of their respective industries.

4. The geographical structure of the division

The geographic organizational structure defines its divisions based on, you guessed it, geography. More specifically, geographic subdivisions can include areas, regions, or districts.

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This type of structure is best suited for organizations that need to be close to their supply sources and/or customers (e.g. for on-site deliveries or support). In addition, many forms of business knowledge are aggregated, allowing each geographic division to make decisions from multiple perspectives.

Unpleasantries

• Decentralizing decision-making can be easy, as geographic divisions (which can be hundreds, if not thousands, of miles apart) often have a high degree of autonomy.
• When you have more than one marketing department—one for each region—you run the risk of creating campaigns that compete with (and undermine) other departments in your digital channels.

Advantage

• Geographical splits give businesses an advantage when targeting a specific customer. Given the differences in language, culture and customs around the world, companies cannot necessarily assume that the same operations operate in different locations.
• Not only does this allow companies to adapt their approach based on geographic location, but it also allows the department to respond quickly and efficiently to geographic market shifts.

5. Process-based structure

Process-based organizational structures are designed for the end-to-end flow of various processes such as "R&D", "customer acquisition" and "order fulfillment". In contrast to a purely functional structure, a process-based structure considers not only the activities performed by people, but also the way in which these different activities interact with each other.

To fully understand the following diagram, consider it from left to right: The customer journey process cannot begin until you have a fully developed product for sale. For the same reason, the order fulfillment process cannot begin until customers have been won and there are no product orders to fulfill.

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A process-based organizational structure is ideal for improving business speed and efficiency and is best suited for people in fast-changing industries as it is easy to adapt.

Unpleasantries

• Like several other frameworks on this list, a process-based framework can create barriers between different sets of processes.
• This can create problems with communication and delegating work to other teams and employees.

Advantage

• As mentioned, one of the main advantages of the process-based structure is the increase in efficiency and speed. If department B cannot start their processes before department A is ready, department A is forced to work quickly and efficiently.
• This organizational model also encourages internal (within a department) and interdepartmental (interdepartmental) teamwork.

6. Matrix structure

Unlike the other structures we have considered so far, the matrix organizational structure does not follow the traditional hierarchical model. Instead, all employees (represented by green boxes) have a dual reporting ratio. Typically, there is a functional reporting line (shown in blue) and a product-based reporting line (shown in yellow).

Looking at the matrix structure org chart, solid lines represent strong, directly reported relationships, while dashed lines indicate that the relationship is secondary or less strong. The following example shows that functional reporting takes precedence over product-based reporting.

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The main advantage of the matrix structure is that it can offer both flexibility and more balanced decision-making (since there are two command paths instead of just one). Having more than one industry oversee a project also gives those industries an opportunity to share resources and communicate more openly with each other — things they might not otherwise be able to do on a regular basis.

Unpleasantries

• The fundamental danger of the organizational structure matrix? Complexity. The more acceptance levels reps have to go through, the more confused they can be about who to reply to.
• Ultimately, this confusion can lead to frustration about who has power over what decisions and products—and who is accountable for those decisions when things go wrong.

Advantage

• The benefit of the matrix structure is that it encourages collaboration and communication.
• Ultimately, this open line of communication allows organizations to share resources and allows employees to develop new skills by collaborating with different departments.

7. Circular structure

While drastically different from the other organizational structures described in this section, the circular structure is still based on hierarchy, with senior staff occupying the inner rings of the circle and lower-level staff occupying the outer rings.

However, leaders or managers in a circular organization are not perceived as sitting at the top of the organization and passing instructions down the chain of command. Instead, they are at the center of the organization and spread their vision outward.

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From an ideological point of view, the circular structure is intended to promote communication and the free flow of information between different parts of the organization. While the traditional structure shows various departments or departments with individual, semi-autonomous branches, the circular structure shows all departments as part of the same whole.

Unpleasantries

• From a practical point of view, the circular structure can be confusing, especially for new hires.
• Unlike a more traditional top-down structure, a circular structure can make it difficult for employees to see who they report to and how they fit into the organization.

Advantage

• Most examples of organizational structures have a top-down hierarchy. Alternatively, this type of structure follows the outside flow and contributes to the free flow of information throughout the organization.
• His benefits include aligning all employees with the company's processes and goals and encouraging cross-departmental collaboration.

8. Flat structure

While a more traditional organizational structure is more like a pyramid — with multiple levels of supervisors, managers, and directors between employees and management — a flat structure delimits management levels so that all employees are just a few steps away from management. Nor can it always be in the form of a pyramid or any other shape. As we mentioned earlier, this is also the type of “organic structure” mentioned above.

This structure is probably one of the most detailed. It is also believed that workers can bemore productivein the area in which it is locatedless hierarchical pressure. This structure can also make employees feel like the managers they have are more of an equal or team member, rather than intimidating supervisors.

Unpleasantries

• In a flat organization, when teams disagree on something, say a project, without managerial decisions from the leader or manager, it can be difficult to adjust and get back on track.
• Because the structure is so complex, it can be difficult to determine which manager an employee should contact when they need approval or a management decision.
• If you choose to have a flat organization, you should have a clearly defined level of leadership or leadership path that employers can fall back on when they encounter such scenarios.

Advantage

• The absence of intermediate conductors defines the flat structure type. The advantages are immediately obvious. First, it reduces the company's costs.
• Second, it allows employees to establish direct relationships with senior management.
• Finally, it shortens the decision-making process.

9. Network structure

A network structure often arises when one company collaborates with another to share resources - or when your company has multiple locations with different functions and management. You can also use this framework to explain your company's workflows when a significant part of your employees or services are outsourced to freelancers or many other companies.

The structure looks almost like the department structure shown above. However, instead of offices, outsourced services or satellite locations outside of the office can also be displayed.

If your company doesn't do everything under one roof, this is a great way to show employees or stakeholders how offsite process outsourcing works. For example, if an employee needs the help of a web developer for a blogging project and the company's web developers are outsourced, they can look at this type of chart and know which office or person to contact outside of their workplace.

Unpleasantries

• The shape of the chart may vary depending on the number of companies or locations you work with. If it's not simple and clear, there can be a lot of confusion when many offices or freelancers are doing similar things.
• If you outsource or have multiple offices, make sure your org chart clearly states where each job role and function is located so someone can easily understand your company's core processes.

Advantage

• By outsourcing the network structure, companies benefit in the form of lower costs, greater focus and increased flexibility.
• Outsourcing can save companies money by not incurring the expense of setting up a department for the same purpose.
• It also gives organizations the flexibility to change processes and focus on their core functions.

Examples of organizational structures

The organizational structure can refer to the entire structure of your company as well as to individual teams. Either way, you typically have a different structure for each department, as each department has different needs and functions.

We'll start with examples of organizational structures for both corporate and nonprofit organizations, and then move on to diagrams for individual teams.

1. An example of the organizational structure of a company: matrix type

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This matrix example of the organizational structure of an imaginary engineering company starts with the CEO at the top. But instead of a leadership team (like CMO, CFO, CTO, etc.), it includes VPs who then oversee individual employees.

Each employee works with members of other teams on a specific customer project. This is a good example if you run a small to medium project or regional business.

2. Example of non-profit organizational structure: flat type

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Nonprofits are structured differently than corporations and tend to be much smaller and more economical. In this example of a nonprofit structure, we see a flat structure where each employee is just a few steps away from the director. There is no internal mobility, which works well for most nonprofits. Instead, the focus is on leading the organization to achieve its program goals.

Note that the leader is not the CEO, but the board of directors, who work directly with the CEO to communicate organizational decisions.

3. Example of the structure of a marketing organization: function type

The organizational structure of the marketing team varies depending on the size of the company. In this example, we see a kind of functional structure where teams are broken down by role. Here, the marketing team is led by a chief marketing officer (CMO), who runs smaller departments divided into six functions: social media, content, product, SEO, website, and acquisitions.

However, your marketing team can also adopt a matrix organizational structure if you cross-divide your individual employees and managers by region, country, project, or some other factor.

4. Example of a sales organization structure: function type

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In many commercial organizations, organizational structures are highly hierarchical, with the Deputy Director of .

In this exemplary sales organization structure, the roles are not fundamentally structured hierarchically, but are divided according to functions. The VP of Sales leads a diverse team that includes a Director of Sales, a Director of Sales Development, a Director of Revenue Operations, a Director of Sales, and a Director of Customer Service.

Although each of them is at a different stage in their career, they are all at the same level and responsible for a specific role in the team.

5. IT organizational structure Example: Function type

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This is another example of a functional org chart, but this time for the IT department. In this University of Michigan example, the IT department is divided by function. Three directors, overseen by the Chief Technology Officer, oversee security, infrastructure and operations; applications; and research and institutional effectiveness.

Each team has a specialization. For example, the applications director oversees both the applications team and the CRM team. If you lead an IT organization, you may take a similar approach or share leadership based on specific processes, such as systems maintenance or IT services.

6. Example of a product organization structure: department type

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For product organizations, the most common organizational structure is a department, where teams are divided based on the product they are working on. Each product team typically consists of a product manager, an engineer, a marketing representative, and even a customer service manager. Depending on how big or small your company is, you may have multiple product managers for a single product.

Conversely, if there is only one product, the entire company can be a product organization. This time the organization would be structured around a process, as in the following example.

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In the example above, the company is divided into processes such as product management, sales and marketing, product development, service and support, and operations. This is a good example if your business is small.

7. Example of an HR organizational structure: matrix type

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This HR org chart is a good example of a matrix structure type. Here, the deputy head of HR oversees three different regions, each with an HRBP, two recruiters and a trainer. Horizontally, HRBP, recruiters and trainers are equally aligned.

This is a good example if your company is a large company with employees in different regions. This is especially useful when there are different labor laws in each region where you operate.

Organizational structure: what you need to know

What is an organizational structure diagram?

The org chart is a diagram that outlines your departments, from C-suite executives to individual employees, and the order of command and decision-making in your organization.

Why is an organizational structure important?

Imagine a company that has no organizational structure. Questions about systems and processes immediately arise. Who makes the decisions? How are employees billed? What are the company's goals? Answering these questions is hardly possible without a functioning organizational structure.

Organizational structure is critical to running a successful business because it improves workflow and efficiency, facilitates communication, identifies business needs, and aligns people with business goals. This has a direct impact on the daily operations of the company. When a company establishes a work structure, the combined efforts of its people combined with its systems and processes allow the company to make better decisions about its future.

What is the best organizational structure?

The best organizational structure varies from company to company and is highly dependent on team size, company type and product offering. However, the functional organizational structure (also called "traditional organizational line" or "hierarchical structure") is a good place to start if you're not sure which organizational structure is right for you.

What are the four basic types of organizational structure?

The four basic types of organizational structure are functional, divisional, matrix and flat structures.

Functional organizational structures divide your company's teams by function and responsibility.

Divisional organizational structures group your teams by product, market or region with smaller organizational structures for each department of your company.

Matrix org structures divide your company's teams into a grid-based structure, with each team having dual reporting relationships with the C-suite and another team.

A flat organizational structure reduces hierarchy to a minimum, eliminates middle management and keeps individual employees as close to management as possible.

How do companies define organizational structure?

Companies determine their organizational structure by taking stock of their current workforce and teams, and then carefully aligning corporate strategy, employee feedback, and management goals with that specific structure.

Some companies may have inherently fallen into a functional organizational structure. In this case, only an organizational chart is required. Others might be on the way. Here are the steps to define your organizational structure from scratch:

• Review teams and roles in your organization.First of all, it is necessary to understand which teams and roles already exist in your company. If your company is new, make a list of planned teams and new hires.
• Develop a business strategy. Your organizational structure should support your strategy, not interfere with it. If your strategy is to launch X new products, a product-based departmental structure can work well.
• Collect feedback from current employees. When building an organizational structure, your current employees are a true source of information. Some employees may want to be closer to management; others may want advancement opportunities. A flat design would be appropriate for the former, while a functional structure would be best for the latter.
• Collect feedback from other managers. Just as the voices of employees count, so do the voices of managers. Get to know their key goals and the support they need to do their best work at your organization.
• Align corporate strategy, employee and management opinions with organizational structure. Look at the types of organizational structures and try to match them with the data and observations you have collected. Sometimes the choice is clear; Other times, you'll need to keep talking and gathering data to find the best structure for you.
• Create an organizational chart. Now that you've chosen the right organizational structure, it's time to create a visual diagram that at a minimum shows your chain of command, departments, span of control, and centralization of your business. Share this chart via email and remember to keep it in a place that is easily accessible to all employees.

Navigate in organizational structures

Organizational structures are essential for a successful team. Employees can move comfortably, safely and efficiently when their role in the organization is clearly defined.

Structure types vary from company to company. Therefore, it is important to note that these frameworks are not universal. Not all of these types may be right for your business, but chances are one of them will. Use this post to help you decide which organizational structure is right for you.and thenTime to start the real work.

Editor's Note: This post was originally published in December 2014 and has been updated to be more comprehensive.