Organizational structures help businesses create clear workflows, improve communication, and encourage collaboration. Choosing the right structure depends on how you want your business to run and the types of models that support that vision.
Generally, organizational structures are categorized along a spectrum from mechanistic to organic. Mechanistic structures are more rigid, with top-down management, while organic structures are flexible and collaborative.
Each of the eight types of organizational structures listed below has its own benefits and drawbacks. It’s important to choose the one that aligns best with your business needs.
1. Hierarchical Structure
The hierarchical structure is a common model, often seen as a pyramid. It has clear levels of authority, with leaders at the top and employees at the bottom. This structure makes it easy to understand who reports to whom and what each person’s role is. It can be motivating for employees who see clear career paths. However, it can also lead to disengagement among lower-level employees and create a bureaucratic environment that hinders innovation.
2. Functional Structure
The functional structure groups employees by their job function, such as marketing, sales, or IT. This model helps employees specialize in their areas of expertise but can result in siloes where departments struggle to communicate or collaborate effectively with each other.
3. Divisional or Product-Based Structure
In the divisional structure, employees are grouped by specific products, regions, or markets. This is most useful for large businesses with diverse product lines or international operations. While each division operates independently with its own resources, it can create duplication of efforts and make scaling difficult. This model may also lead to decentralized decision-making and bureaucratic challenges.
4. Process-Based Structure
A process-based structure organizes employees around the flow of business processes, from research and development to customer acquisition and order fulfillment. This structure focuses on optimizing the process rather than specific roles. However, like other models, it can create siloes that prevent sharing of important feedback across teams.
5. Matrix Structure
The matrix structure is more flexible and involves dual reporting, where employees report to both a functional manager and a project or product manager. This setup helps balance decision-making and facilitates resource-sharing across different business units. It’s ideal for companies with multiple divisions or projects, but can be complicated to manage due to the dual chains of command.
6. Circular Structure
In a circular structure, leadership is placed at the center, with responsibility and decision-making flowing outward, rather than following a vertical hierarchy. This model encourages communication and collaboration across departments. However, it can be difficult to understand, especially for new employees, as there’s no clear chain of command.
7. Network Structure
A network structure is common in businesses that rely on freelancers, vendors, or external contractors. It groups employees based on specialized skills and focuses on collaboration to meet customer needs. While this model offers flexibility, it can be challenging to manage because there’s no clear authority, which can lead to confusion about who is responsible for decision-making.
8. Flat Structure
A flat structure is highly organic, with minimal levels of hierarchy. Everyone, from entry-level employees to top leadership, has an equal say in decision-making. This promotes transparency and can increase employee motivation, but can also cause difficulties when it comes to making important decisions or resolving disagreements within the company.
Choosing the Right Structure for Your Business
When deciding on the organizational structure for your business, consider its growth stage, company culture, and overall strategy.
Smaller businesses or startups often benefit from organic structures that encourage employee involvement in decision-making. As a company grows, a more formal structure may be needed to accommodate new processes and workflows.
Your company culture plays a key role in the structure you choose, so gather feedback from employees and contractors. This will help you determine whether less oversight might improve efficiency or whether a more functional approach is needed to prevent bottlenecks.
Finally, align your structure with your strategic plan. For example, a small business with just a few locations will likely have a different structure than a company with many locations across the country. Make sure your organizational design supports your long-term goals.
