Organizational structures are diagrams that show how an organization is structured. Businesses of all shapes and sizes use organizational structures heavily. They define a specific hierarchy within an organization. A successful organizational structure defines each employee’s job and how it fits within the overall system. Put simply, the organizational structure lays out who does what so the company can meet its objectives.
Every organization has tasks that need to be accomplished and objectives that need to be met. A corporation’s organizational structure defines how these jobs fit into the company’s framework. Organizational structures can be formal or informal, but they must be effective for a business to run effectively and efficiently. Whether you’re trying to figure out how to organize your house or manage your office, an organizational structure is the best first step. Often referred to as a hierarchy or bureaucracy, organizational structures are used in just about any organization, from one person operating a sole proprietorship to Google and Microsoft, which employ thousands of people.
What Are Organizational Structures?
An organizational structure is a system that defines how certain tasks are directed to fulfill an organization’s goals. These actions may include the implementation of rules, roles, and duties. The organizational structure also governs how information moves within the corporation. In a centralized structure, for example, decisions are made from the top down, but in a decentralized structure, decision-making power is divided across multiple levels of the organization. Companies that have an organizational structure in place are more efficient and focused.
Understanding Various Structure
This architecture provides a visual picture of how a firm is structured and how it may best go forward in accomplishing its goals. Organizational structures are typically depicted in the form of a pyramid chart or diagram, with the most powerful people of the company at the top and those with the least amount of influence at the bottom. Certain organizations may struggle if they do not have a formal structure in place. Employees, for example, may be unsure to whom they should report. As a result, there may be confusion about who is responsible for what in the organization. A structure can help with efficiency and provide clarity for everyone at all levels. This also means that each department will be more productive because they will be more focused on energy and time.
Why Structure is Important?
The structure will provide employees with more clarity, assist in managing expectations, allow for better decision-making, and create consistency. Organizational charts also assign responsibilities, coordinate processes, and ensure that critical activities are performed on time. The structure also governs how things are done in your organization. This is where a well-developed organizational chart comes in handy. It illustrates who performs what and who reports to whom. Employees have job titles, which are followed by job descriptions that outline responsibilities. The primary goal of such a structure is to assist the organization in achieving its objectives. It brings members of the organization together and separates their functions. Second, the structure contributes to the organization’s smooth and efficient operation.
Elements of an Organization
What is the purpose of a formal organizational structure? Do you even need one as a business leader? As previously said, org structures assist you in defining at least three critical parts of how your organization will operate. As your firm grows in size, and organizational structure can be beneficial to new employees in learning who oversees what operations at your company. Then, if you need to pivot or shift your leadership, you can see how the workflows might change by adjusting your organizational structure diagrams.
Simply defined, this chart is a map that explains how your organization works and how its functions are organized. Here’s what each of those components represents to a business:
Chain of Command
In an organizational structure, “chain of command” refers to a company’s hierarchy of reporting links – who must answer to whom from the bottom to the top of an organization. The chain of command not only promotes responsibility but also establishes the lines of authority and decision-making power within a firm. A chain of command establishes suitable channels of communication. It enables members to share and receive information. It is both easy and effective when applied correctly. All commands and instructions must go through the chain of command.
Span of Control
The number of subordinates that supervisors or managers in an organization can manage effectively and efficiently is referred to as the span of control. It is typically narrow or broad, resulting in a flatter or more hierarchical organizational structure. The level of interactions and duties connected with employees and supervisors is determined by the span of control. The method is used to determine management style and functions within the business.
Centralization enables an organization, or at least its highest levels, to manage lower-level employees’ behavior so that they are congruent with organizational goals. Centralization has four primary benefits: cheaper expenses, more productivity, fewer regulatory costs, and increased overall flexibility and agility. Proponents of centralized decision-making argue that it improves performance by promoting faster decision-making, offering clear direction and goals, and establishing clear lines of hierarchical authority, so avoiding potentially detrimental internal disagreement.
Centralization refers to the location of ultimate decision-making. After you’ve established your chain of command, you’ll need to decide who and what departments get a say in each decision. A company can be centralized, with final decisions made by just one or two entities, or decentralized, with final decisions made within the team or department in charge of carrying out that decision. You may not require an organizational structure right away, but the more items you produce and the employees you hire, the more difficult it will be to lead your firm without this critical blueprint.
Mechanistic vs. Organic Organizational Structures
Organizational structures are classified as “mechanistic” at one end of the spectrum and “organic” at the other. Consider the diagram below. As you can undoubtedly guess, the mechanistic structure is the typical, top-down approach to organizational structure, and the organic structure is a more collaborative, flexible approach. Here’s a breakdown of both sides of the structural spectrum, their benefits and drawbacks, and which types of firms they’re most suited for.
Mechanistic structures, also known as bureaucratic structures, are distinguished by their small spans of control, as well as their high levels of centralization, specialization, and formalization. They’re also quite strict about what individual divisions are supposed to perform and what they’re allowed to do for the corporation. This organizational structure is far more formal than the organic structure, relying on precise standards and processes to control every company action. While this model helps hold employees more accountable for their job, it can also stifle the organization’s inventiveness and agility, which are required to keep up with the unpredictable changes in its market.
As intimidating and rigid as a mechanistic organization may appear, the line of command, no matter how lengthy or short, is always obvious under this approach. As a firm grows, it must ensure that everyone (and every team) understands what is expected of them. Teams engaging with other teams as needed may help a firm get off the ground in its early stages, but maintaining that growth — with more people and projects to manage — will eventually necessitate some policy-making.
Organic structures (sometimes referred to as “flat” structures) are distinguished by their broad spans of control, decentralization, low specialization, and loose departmentalization. What does it all mean? In this model, several teams report to a single person and take on tasks based on their relevance and what the team is capable of — rather than what the team is created to perform. As you might expect, this organizational structure is far less formal than mechanistic, and it takes a more ad hoc approach to company needs. This can make the chain of command, whether long or short, difficult to decipher at times. As a result, leaders may grant certain initiatives the go-ahead more rapidly, although this may produce uncertainty in the project’s division of labor.
Nonetheless, the flexibility that an organic structure offers can be immensely beneficial to a corporation navigating a fast-moving market or simply seeking to steady itself after a difficult quarter. It also encourages employees to try new things and grow as professionals, resulting in a more strong workforce for the firm in the long run. What’s the bottom line? Startups are frequently ideal for organic structure because they are primarily concerned with gaining brand recognition and getting their wheels off the ground.
Types of Organizational Structure
Let us now explore more specific forms of organizational structures, the majority of which are on the more traditional, mechanical end of the spectrum.
- Functional Organizational Structure
- Product-Based Divisional Structure
- Market-Based Divisional Structure
- Geographical Divisional Structure
- Process-Based Structure
- Matrix Structure
- Circular Structure
- Flat Structure
- Network Structure
The organizational structure of a team will differ depending on the size of the firm and its aims. Each form has advantages and downsides; however, developing a clear organizational structure has a universal benefit. It assists employees in understanding their function within a firm, allowing them to manage expectations and goals. To be successful, a company must have an organizational structure in place. Companies often utilize nine different types of organizational structures, which we will go over in detail below.
1. Functional Organizational Structure
The functional structure, one of the most popular forms of organizational structure, departmentalizes an organization based on common job functions. An organization with a functional org structure, for example, would combine all of the marketers into one department, all of the salesmen into another, and all of the customer service representatives into a third. The functional structure allows employees to specialize to a high degree and is easily scalable as the firm grows. Also, while this structure is mechanical, which can stifle an employee’s progress, placing employees in skill-based divisions allows them to go deep into their sector and discover what they’re good at.
- Disadvantages: Functional structure can create barriers between functions — and it can be inefficient if the firm has a diverse range of goods or target markets. The walls that are built between departments can also hinder people’s awareness of and communication with other departments, particularly those that rely on other departments to succeed.
- Benefits: A functional organization improves efficiency, stability, and responsibility. It enables departments to focus on their specialized work within their respective domains, as people with similar abilities and expertise share them. Because the tasks and responsibilities of this organizational structure example are rarely changed, department members can work on similar assignments and perfect their talents constantly.
Management also acts through the set framework of functional organization. It establishes a chain of command for staff. It directs team communication and holds the team accountable.
2. Product-Based Divisional Structure
A divisional organizational structure is comprised of multiple, smaller functional structures (i.e. each division within a divisional structure can have its own marketing team, its own sales team, and so on). In this case — a product-based divisional structure — each division within the organization is dedicated to a particular product line. This type of structure is ideal for organizations with multiple products and can help shorten product development cycles. This allows small businesses to go to market with new offerings fast.
- Disadvantages: A product-based divisional structure can be difficult to grow, and the organization may wind up with duplicate resources as separate divisions attempt to produce new offerings.
- Benefits: Companies and their employees can profit from the product-based divisional structure. If one division performs poorly, this does not necessarily translate to the rest of the corporation. Divisions may flourish (or fail) concurrently as a result of their separation. This approach enables businesses to reduce risk.
3. Market-Based Divisional Structure
Another sort of divisional organizational structure is the market-based structure, in which an organization’s divisions are based on markets, industries, or client types. The market-based structure is suitable for an organization with products or services that are unique to distinct market segments, and it is especially effective if that company has an extensive understanding of those segments. This organizational structure also keeps the company constantly aware of changes in demand among its various audience segments.
- Disadvantages: Too much autonomy among each market-based team can lead to divisions building conflicting systems. Divisions may also end up mistakenly duplicating activities that are already handled by other divisions.
- Benefits: Because this organizational structure is focused on certain market niches, each division has autonomy. The divisions operate autonomously, allowing staff to work independently and focus on the demands of their specific industry.
4. Geographical Divisional Structure
The geographical organizational structure divides the organization into sections depending on geography. Territories, regions, and districts are some examples of geographical structure divisions. This structure is best suited to enterprises that require proximity to sources of supply and/or consumers (e.g. for deliveries or for on-site support). It also brings together various types of business experience, allowing each geographical division to make decisions from a wider range of perspectives.
- Disadvantages: The fundamental disadvantage of a geographical organizational structure is that decision-making can easily become decentralized, as geographic divisions (which can be hundreds, if not thousands, of miles away from corporate headquarters) generally enjoy a considerable lot of autonomy. And, if you have more than one marketing department — one for each region — you risk producing campaigns that compete with (and undermine) other divisions across your digital channels.
- Benefits: Geographical divides provide businesses the advantage of catering to a certain customer. Companies cannot expect the same operations to function in multiple areas due to differences in language, culture, and customs found around the world. It not only enables enterprises to adjust their strategy based on region, but it also enables the division to respond swiftly and efficiently to any geographic market changes.
5. Process-Based Structure
Process-based organizational structures are built around the end-to-end flow of various processes, such as “Research & Development,” “Customer Acquisition,” and “Order Fulfillment.” Unlike a strictly functional structure, a process-based structure takes into account not only the activities that employees perform, but also how those different activities interact with one another. To properly comprehend the diagram below, read it from left to right: The client acquisition process cannot begin until you have a completely built product to sell. Similarly, the order fulfillment process cannot begin until clients have been acquired and product orders have been received. A process-based organizational structure is good for increasing a company’s speed and efficiency, and it is best suited for companies in quickly changing industries because it is easily flexible.
- Disadvantages: Process-based structures, like a few others on this list, can create barriers between process groups. This causes issues with communication and delegating work to other teams and employees.
- Advantages: As previously stated, one of the major advantages of the process-based structure is increased efficiency and speed. Department A is forced to work quickly and efficiently if Department B cannot begin its processes until Department A is finished. This organizational paradigm also encourages both intradepartmental (inside a department) and interdepartmental (across different departments) collaboration.
6. Matrix Organizational Structure
A matrix organizational structure, unlike the other structures we’ve looked at so far, does not adhere to the traditional, hierarchical approach. Instead, all employees (indicated by the green boxes) have a dual reporting structure. A functional reporting line (shown in blue) is usually present, as well as a product-based reporting line. When viewing a matrix structure org chart, solid lines show strong, direct-reporting relationships, whereas dotted lines suggest a secondary, or less strong, relationship.
The matrix structure’s key benefit is that it can allow both flexibility and more balanced decision-making (as there are two chains of command instead of just one). Having a single project overseen by more than one business line also allows these business lines to exchange resources and interact more openly with one another, which they might not be able to do regularly.
- Disadvantages: What is the biggest disadvantage of the matrix organizational structure? Complexity. The more permission layers staff must go through, the more confused they may become about who they are meant to answer to. This ambiguity can lead to frustration over who has responsibility for certain decisions and goods — and who is accountable for those decisions when things go wrong.
- Benefits: A matrix structure facilitates collaboration and communication, which is one of its benefits. This open line of communication eventually allows organizations to exchange resources and people to learn new skills by collaborating with different divisions.
7. Circular Structure
While the circular structure may appear to be very different from the other organizational structures discussed in this section, it nevertheless relies on hierarchy, with higher-level employees occupying the inner rings of the circle and lower-level employees occupying the outer rings. However, the leaders or executives in a circular organization are not perceived as sitting atop the organization, giving commands down the line of command. Instead, they are at the heart of the company, propagating their vision.
A circular structure is intended to encourage communication and the free flow of information between different elements of the organization from an ideological standpoint. In contrast to the traditional form, which represents separate departments or divisions as occupying individual, semi-autonomous branches, the circular layout depicts all divisions as being part of the same whole.
- Disadvantages: From a practical standpoint, the circular structure might be perplexing, particularly for new staff. A circular structure, as opposed to a more typical, top-down form, might make it difficult for employees to figure out who they report to and how they’re supposed to fit into the business.
- Benefits: The majority of examples of organizational structures feature a top-down hierarchy. This style of structure, on the other hand, follows an outward flow and contributes to information moving freely across the firm. Its advantages include keeping all employees aligned with the company’s operations and goals and encouraging employees to interact across departments.
8. Flat Structure
While a more typical organizational structure may resemble a pyramid, with numerous tiers of supervisors, managers, and directors between workers and leadership, this type minimizes the levels of management so that all personnel or employee is only a few steps away from leadership. It may not always take the shape of a pyramid or any structure at all. As previously said, it is also a type of the previously mentioned “Organic Structure.” This is most likely the most thorough. It is also believed that employees can be more productive in a workplace with fewer hierarchy-related demands. This arrangement may also give employees the impression that the managers they do have are more like equals or team members than threatening bosses.
- Disadvantages: If teams in a flat company disagree on something, such as a project, it can be difficult to align and get back on track without executive decisions from a leader or manager. Because of the structure’s complexity, determining which management an employee should approach if they require approval or an executive decision can be difficult. If you do decide to create a flat organization, you should have a clearly defined tier of management or path that employers may look to when they encounter certain problems.
- Advantages: This type is defined by the elimination of middle management workers. Its benefits are immediate. For starters, it lowers the company’s expenses. Second, it enables employees to develop direct contacts with higher management. Finally, it expedites the decision-making process.
9. Network Organizational Structure
When one company collaborates with another to share resources — or if your organization has many sites with diverse responsibilities and leadership — a network structure is typically formed. You might also use this structure to illustrate your company workflows if you outsource a large portion of your staffing or services to freelancers or numerous other organizations. The structure is very similar to the Divisional Structure depicted above. Instead of offices, it may list outsourced services or satellite locations located outside of the office.
- Disadvantages: Depending on how many companies or locations you’re dealing with, the shape of the chart may vary. If numerous offices or freelancers accomplish comparable activities, there may be a lot of confusion if it is not maintained straightforwardly. If you outsource or have many office locations, make sure your organizational chart clearly shows where each specific role and job function is located so that anyone can readily comprehend your core company procedures.
- Advantages: Because the network structure is outsourced, businesses benefit from lower expenses, greater focus, and increased flexibility. Organizations can save money by outsourcing because they do not have to incur the cost of establishing a department for the same purpose. It also provides firms with the freedom to modify their operations and focus on their core functions.
Putting in place an organizational structure can be quite advantageous to a business. The structure not only establishes a company’s hierarchy but also allows the corporation to put out its employee pay structure. By establishing an organizational structure, the company can determine wage grades and ranges for each position. The structure also improves the efficiency and effectiveness of operations. The corporation can undertake many operations at the same time by splitting people and functions into various departments.