Types of Organizational Structure

Different types of organizational structure. Four most used org structures. Benefits of org structures. How can you pick the suitable org structure?
Types of Organizational Structure

Table of Content

Anyone can run a business or form one. But everyone can’t bring success to their business. It’s not quite easy to do so! Do you know who can bring the ultimate success to their entrepreneurial venture? The one who chooses the right organizational structure!

An organizational structure for the company can ensure that your business is running smoothly and completing your business goals.

However, understanding several types of organizational structures might take a lot of work for you. To ease into that idea, we will elaborate on different types of organizational structures and their benefits and flaws. Take a look below and choose the proper organizational structure for your business.

Define Organizational Structure

In a nutshell, an organizational structure is the backbone of any company’s operating procedures and workflows. In an organizational structure, there is a set of rules, roles, relationships, and responsibilities that determine the company’s goals.

You may ask, “What is the point of needing an organizational structure?” If you are a business owner, then you must need one. Because it can outline your company like a map, improve workflow and efficiency, promote communication, identify company needs, and align employees with company goals. You can easily manage your business. A well-planned organizational structure can quickly bring you the success you dreamed of.

Organizational Structure Example

Several organizational structures are available, but you should choose one that is suitable for your business. Suppose you own a larger company; then a hierarchical structure can suit you because power flows from the board of directors down to the CEO through the rest of the company from top to bottom like a pyramid. The authority controls the instructions, decisions, and directions, which flow according to the ranking system. Assume the CEO makes a decision that passes to the chief operating officer, then to the manager, team leaders, and employees.

Importance of Organizational Structure

You can’t finish explaining the importance of an organizational structure – because there is much to say. And a lot of reasons behind its importance. Organizational structure is necessary for every company since it enhances productivity, efficiency, communication, company demands, and employee alignment. You can’t imagine a business without an organizational structure. It directly affects how a business operates daily. Now we will describe some facts about why an organizational structure is important for a business.

  • Direction and Coordination: A well-made organizational structure can define the direction and coordination of a company. It provides a clear understanding of the roles and responsibilities of a company. Also, it improves communication and coordination between employees, departments, and teams. If you build your company around an organizational structure, it can reduce confusion and conflicts and also improve work productivity.

  • Management Planning: An organizational structure is a management tool for a business company. It can help a company plan for the future and reach its goals. Also, it can determine the hiring process and how it plans to expand in the future.

  • Improves Decision-Making: In an organizational structure, decisions about the company are made according to hierarchy levels. So, it ensures that the decisions are accurate and made at the appropriate level.

  • Increase Productivity: We know that an organizational structure clarifies the roles and responsibilities of every employee and authority or owner. And this helps to improve work efficiency. With a clear organizational structure, you can produce a clear output.

  • Enhance Business Growth: An organizational structure outlines customer expectations, focus resources, budget, market product, etc. And it promotes business growth quickly.

The necessity of an organizational structure is incalculable. Besides, the benefits of the organizational structure will be decided for your company after you choose it.

Different Types of Organizational Structures

Although several organizational structures are available, only 4 types of organizational structures are commonly implemented in the real world. Most businesses use these 4 types of organizational structures because they have the most beneficial features. Let’s review the definition, pros, and cons of the four common types of organizational structure. After that, you can easily decide which one is most suitable for you.

1. Functional Structure

A functional organizational structure is a centralized structure where roles and responsibilities are applied in orderly groups. Suppose you form a company following the functional structure. That means in your company, the work procedure will be divided into groups or teams like marketing, sales, development, production, etc. And the decision-making will follow a ranking pattern from directors to low-level employees.

Advantages

  • It is ideal for larger companies that need to meet short deadlines.

  • It has a hierarchy of authority and a clear chain of command.

  • It is easily scalable in any sized company.

  • It increases efficiency, provides stability, and boosts accountability.

  • This structure defines everyone’s responsibility and the goals of the company, which increases business productivity.

Disadvantages

  • Because of the following hierarchy system, the communication between departments.

  • It has less focus on customer needs.

  • Collaboration between different work functions is challenging.

2. Divisional Structure

Divisional structure (decentralized) is for larger companies that have several branches in several areas. In every branch or division, the company has the same departments and work lines, including production, marketing, finance, and sales. For example, McDonald’s has several divisions around the world. Each division functions as its own entity, with its own resources, goals, and decision-making power.

It has three parts, such as-

  • Product-based divisional structure.
  • Market-based divisional structure.
  • Geographical divisional structure.

Advantages

  • It is beneficial for larger companies.

  • Every division has its own autonomy, which increases business productivity separately.

  • Because there are separate divisions, if one division performs poorly, it doesn’t affect others.

  • It focuses on products and customer needs, which reach customer satisfaction.

  • It provides a faster response to the customer.

Disadvantages

  • It has poor communication between divisions.

  • It has less interaction among different departments.

  • There is a chance of having duplicate resources because of separate divisions. And it increases costs.

3. Matrix Structure

In a matrix (centralized) structure, there is no clear direction for roles and responsibilities. It means anyone from a department can work in other departments if needed. A matrix structure has cross-functional teams that work on several special projects. For example, in a company, different teams and employees work on the same project, like an employee from the marketing team, another from the developer team, and another from the designer team. Also, an employee from one team can work on different projects.

Advantages

  • It provides flexibility to work in several departments; for example, an employee may have sales and customer service duties.

  • Managers can select the most qualified employees for a project.

  • Because of work flexibility, employees can learn and develop their skills outside their primary responsibilities.

  • It promotes collaboration and communication between the teams and employees.

  • It enhances a balanced decision-making process.

Disadvantages

  • It is also confusing, complex, and the least used organizational structure.

  • Because of cross-functional work, there could be conflicts between teams.

  • It could be challenging to track budgets and resources.

4. Flat Structure

A flat organizational structure (decentralized) is mostly beneficial for small businesses, startups, and tech companies. It is also called a horizontal structure, which has no levels or fewer levels of management. It gives all employees equal power in the company, and the company follows this structure until it grows into a larger company. For example, in a startup tech company, there will be a project manager and no big department after the CEO. All the employees, such as developers, designers, and marketers, report to the manager only.

Advantages

  • It has fewer levels of management, which means a company that follows a flat structure has less formality and is less costly than other structures.

  • It offers faster communication and coordination between employees.

  • Tech startups follow a flat structure because they enhance innovation and creativity.

  • Because there are fewer management levels, it’s easy to process decision-making and adapt to changes, and implementation happens fast.

  • In a flat structure, employees have more responsibility and independence.

Disadvantages

  • Employees face an overburden of responsibilities.
  • Employees face a lack of supervision.
  • Less expertise among employees.
  • Conflicts can arise because of a lack of supervision.

The Benefit of Organizational Structure

An organizational structure is the road map for a company’s success. So, it’s necessary for every organization that wants to run their business smoothly and bring quick success to their company. Here are some key benefits we listed below. Take a look.

  • Work Specialization: Work specialization means the employees’ roles in an organizational structure; ensure these criteria when you choose it for your company. An organizational structure defines the roles and responsibilities of every employee and team. So, it increases the overall performance of the company.

  • Chain of Command: In a company, there are many departments, and the product line continues at a time. To balance that, you need to establish a chain of command. The chain of command gives people a clear direction about their work.

  • Scope of Control: Scope of control indicates a process where employees report to a given manager. It increases work efficiency, and an organizational structure ensures that in a company.

  • Departmentalization: Creating departments is another benefit of an organizational structure. When a company runs into teams or departments, productivity continues smoothly, and employee communication strengthens.

These are the key benefits that organizational structures provide. Now we will discuss some other benefits.

  • Work Efficiency: Organizational structure improves the level of efficiency and productivity within the company.

  • Reduces Conflict: When you choose an organizational structure, it clears up the specific roles of everyone, which reduces conflicts between employees.

  • Multiple Businesses: By choosing an organizational structure, you can manage several branches in different areas. An organizational structure will make it easy for you.

  • Eliminates Duplication: Following an organizational structure can eliminate the risk of overlapping job duties. For example, if a project is assigned to one team, the other teams know it’s not their responsibility to take it on.

  • Adaptability: With an organizational structure, you can make a decision faster for your company. Also, it will help you adapt that decision and apply it to your company.

We can see that an organizational structure offers uncountable benefits to a business. From every angle, choosing a structure would be the best decision for your business. However, there can be a problem when you go to select an organizational structure. There are several organizational structures, and you must choose only one for your business. In that situation, you can get help from a business consultant.

Get Help

To select the right organizational structure, you can take advice from Business Globalizer. They have expertise in choosing the most beneficial organizational structure for every kind of business. They follow a procedure after analyzing your business and picking the most suitable structure for you.

FAQs

Q1: Can I change my organization’s structure if I want?

Yes. The organizational structure can be changed if needed. Businesses are constantly evolving, so changing their structure might be necessary sometimes. To change a structure, you need to follow a strategy of transformation. And it could be a complex process. Keep that in mind.

Q2: What is the most common organizational structure?

Answer: Although the hierarchical structure has multiple levels of management and formalities, most businesses follow this structure because it is the most traditional one. The larger companies often follow this structure. But nowadays, businesses like startups and small businesses adapt flat or matrix structures, often because of work flexibility.

Bottomline

We describe the four most commonly used types of organizational structure. But there are other structures, such as network structure, line structure, hierarchical structure, circular structure, team structure, etc. You can choose one according to your business’s needs.

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