A Guide to the 4 Types of Organizational Structures (With Examples)
Just like no two people are the same, no two companies are identical. While you may find similar organizations within the same industry, there will always be nuances and differences between every brand.
And while you may feel like you have a good grasp on your company’s structure and leadership approach, it’s important that you visualize this structure as a formal organizational structure.
The Importance of an Organizational Structure
Businesses need structure in order to function and grow. Without structure, there’s very little clarity and focus; nobody knows whom to report to and responsibilities are passed around like a hot potato.
Structure is the reason why we refer to businesses as “organizations.” There’s an organized flow of leadership and authority in which every individual is supposed to have a clear idea of what they do, whom they supervise, and whom they ultimately report to.
If your business doesn’t have a formal organizational structure, you’re asking for trouble. However, the good news is that it’s simpler than ever to create organizational charts that can be shared and viewed for enhanced clarity throughout the company. But before you do so, you need to carefully analyze your business and consider where you stand.
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4 Common Types of Organizational Structures
There are many different kinds of organizational structures found in companies.
Organizational structures can be tall, in the sense that there are a number of tiers between entry-level employees and the leaders of the company. Organizational structures can also be fairly flat, in the sense that there are only a couple of levels separating the bottom from the top. Depending on your goals, pay structure, and division of work, you may relate more to one structure than another.
While you don’t necessarily have to use an organizational structure that currently exists, it helps to be aware of what other companies are using. Here are a few of the most common structures in modern businesses:
1. Functional
Also commonly called a bureaucratic organizational structure, the functional structure divides the company based on specialty. This is your traditional business with a sales department, marketing department, customer service department, etc.
The advantage of a functional structure is that individuals are dedicated to a single function. These clearly defined roles and expectations limit confusion. The downside is that it’s challenging to facilitate strong communication between different departments.
2. Divisional
The divisional structure refers to companies that structure leadership according to different products or projects. Gap Inc. is a perfect example of this. While Gap is the company, there are three different retailers underneath the heading: Gap, Old Navy, and Banana Republic. Each operates as an individual company, but they are all ultimately underneath the Gap Inc. brand.
Another good example is GE, which owns dozens of different companies, brands, and assets across many industries. GE is the larger brand, but each division functions as its own company. While dated and abbreviated, this diagram gives you an idea of what GE’s basic organizational structure looked like.
3. Matrix
The matrix structure is a bit more confusing, but pulls advantages from a couple of different formats. Under this structure, employees have multiple bosses and reporting lines. Not only do they report to a divisional manager, but they also typically have project managers for specific projects.
While matrix structures come with a lot of flexibility and balanced decision-making, this model is also prone to confusion and complications when employees are asked to fulfill conflicting responsibilities.
4. Flatarchy
While large businesses have traditionally followed a tall structure, it’s becoming increasingly common to see flatarchies in smaller businesses and new startups.
“Unlike the traditional hierarchy which typically sees one-way communication and everyone at the top with all the information and power, a ‘flatter’ structure seeks to open up the lines of communication and collaboration while removing layers within the organization,” writes Forbes’ Jacob Morgan.
This flatarchy structure essentially removes unnecessary levels and spreads power across multiple positions. This leads to better decision-making, but can also be confusing and cumbersome when everyone doesn’t agree. In other words, it comes with pros and cons just like the other structures.
Create an Organizational Structure for Your Business
While you may have an image in your head of what your organization’s structure looks like, it’s wise to create a visual chart that can be referenced by anyone in the business. These charts are helpful for a number of reasons, including:
- Showing work responsibilities and reporting relationships
- Improving lines of communication
- Reducing cross-departmental confusion
- Creating a visual employee directory
- Allowing for better management and growth
If you don’t currently have an organizational structure in place, now’s the time to implement one. The more organized your business is, the more efficiently it will function in the long run. This is just one component of being successful, but it’s certainly a crucial one.
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