Running a business means successfully delegating tasks among your employees. It also means having the final say on all projects or, if your company is on the larger side, hiring people whom you trust enough to give full approval powers. An organizational structure for your business can help you make sense of where and with whom your company’s responsibilities lie, and you have plenty of types from which to choose. Show
What is an organizational structure?An organizational structure is a set of rules, roles, relationships and responsibilities that determine how a company’s activities should be directed to achieve its goals. It also governs the flow of information through levels of the company and outlines the reporting relationship among midlevel staff, senior management, executives and owners. It is effectively a hierarchy for a company, though some organizational structures emphasize a near-total lack of hierarchy. Key takeaway: An organizational structure determines how information, responsibilities and approval will flow within your company.How many types of organizational structures are there?In your research, you may at first read that there are two types of organizational structures: centralized and decentralized. However, using just these two classifications for every possible team structure may paint with too broad a brush. That’s why experts have come up with eight types of organizational structures, each of which is either centralized or decentralized:
All of these are centralized except for the flat, team and network structures. In a centralized structure, power flows up the chain of command to the executives and owners, whereas decentralized organization structures give far more power to non-executives and non-owners. We’ll get more into how this works in just a moment. Types of organizational structure to consider for your businessNow that you know the eight types of organizational structures, you’re probably wondering which one is best for your business. The answer, as with many business matters, is that the right choice differs by company. Below, we’ll detail what each organizational structure entails so you can discern which model best fits your ongoing business practices and future business needs. 1. Hierarchical structureA hierarchical structure, also known as a line organization, is the most common type of organizational structure. Its chain of command is the one that likely comes to mind when you think of any company: Power flows from the board of directors down to the CEO through the rest of the company from top to bottom. This makes the hierarchical structure a centralized organizational structure. In a hierarchical structure, a staff director often supervises all departments and reports to the CEO. This structure is well suited for any business in any industry. These are some advantages of a hierarchical structure:
There are also some drawbacks of choosing a hierarchical structure:
2. Functional structureThe functional structure is a centralized structure that greatly overlaps with the hierarchical structure. However, the role of a staff director instead falls to each department head – in other words, each department has its own staff director, who reports to the CEO. Any company with several modestly sized departments may find the functional structure to be a fit. These are some advantages of a functional structure:
These are some disadvantages of a functional structure:
3. Divisional structureThe centralized structure, known as a divisional organization, is more common in enterprise companies with many large departments, markets or territories. For example, a food conglomerate may operate on a divisional structure so that each of its food lines and products can have full autonomy. In the divisional structure, each line or product has its own chief commanding executive. Large companies of any sort, but especially in manufacturing industries, are the best fit for this structure. These are the main advantages of a divisional organization:
These are some disadvantages of a divisional structure:
4. Flat structureA flat structure is a decentralized organizational structure in which almost all employees have equal power. At most, executives may have just a bit more authority than employees. This organizational structure is common in startups that take a modern approach to work or don’t yet have enough employees to divide into departments. That makes flat structures especially well suited to the tech industry, which is home to many small startups with flexible work arrangements. These are some advantages of a flat structure:
These are the main disadvantages of a flat structure:
5. Matrix structureThe matrix structure is a fluid form of the classic hierarchical structure. This centralized organization structure allows employees to move from one department to another as needed. You might encounter this structure in industries home to highly skilled employees who might be their company’s only experts in their field. These are the main advantages of a matrix organization:
These are some disadvantages of a matrix organization:
6. Team structureA team structure is a decentralized but formal structure that allows department heads to collaborate with employees from other departments as needed. It is similar to a matrix structure, but the focus is less on employee fluidity than on supervisor fluidity, leading to a decentralized functional structure. Any industry in which flat or matrix structures are common might also be home to many companies with team structures. These are the advantages of a team structure:
These are some disadvantages of a team structure:
7. Network structureA network structure is especially suitable for a large, multicity or even international company operating in the modern era. It organizes the relationships not just among departments in one office location, but also among different locations and each location’s team of freelancers, third-party companies to whom certain tasks are outsourced, and more. While this may sound like a lot for one type of network structure to detail, this decentralized structure can be useful for understanding the human resources your company has on hand. You’ll commonly encounter network structures among distributors, tech companies or logistics companies with international branches. These are potential advantages of a network structure:
These are the possible disadvantages of a network structure:
8. Projectized structureIn a projectized structure, the focus is on one project at a time. In this centralized organizational structure, project managers act as supervisors, not just resource allocators and decision-makers. Unlike other structure types, a projectized structure involves the demobilization of teams and resources upon a project’s completion. But it’s like other types of organizational structures in that an obvious hierarchy exists. Software development teams may benefit from projectized structures given the complexity that can go into app or website development. These are some advantages of a projectized structure:
These are some disadvantages of a projectized structure:
Below is a chart summarizing the eight types of organizational structures.
Which organizational structure is best?No one organizational structure is best for all businesses. When determining the right one for your company, think about how much power you would like to give your employees, how much room you would like to leave for innovation, how large your company is and how much interaction among employees matters to you. After weighing these factors, you’ll likely know which organizational structure is best for you – and if you get it wrong, you can always switch to another organizational structure. What are the 4 types of organizational structures?The four types of organizational structures are functional, multi-divisional, flat, and matrix structures. Others include circular, team-based, and network structures.
Which type of organisation is suitable for a multi product company?Divisional structure is suitable for a multi-product manufacturing company.
What kind of organizational structure is suitable for the service industry?The most advantageous organizational structure for a service business is one in which employees can handle multiple different roles as needed, using a combination of interpersonal and technical skills to work with both customers and other members of the same organization.
What is multi organizational structure?Multi-organizational structures. Multi-Organizational Structures (MOS) are new organiza- tions or arrangements that result from the partnership of two or more organizations. MOS, which we situate somewhere in the middle of two extremes (no organization, one single integrated organization), may be emergent or planned.
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