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Organizational Structure Types You Should Know (and Why They Matter)

Jul 21, 2022| Reading time: 10min

BY Ben Pollack

Group Manager of Growth Marketing

Whether you’re a small start-up with five employees or a sprawling enterprise composed of thousands of people, you need to organize your company so people have clear roles and responsibilities.

A lack of structure – especially on large or cross-functional teams – can result in employees struggling to take ownership of their workflows. In this way, business outcomes are a by-product of the organizational structure of a company.

When organizations identify the right structure for them, they build a well-oiled machine that aligns employee productivity with customer needs. When there is structural misalignment, your company might struggle with disjointed workflows and misdirected product offerings. 

Read on to determine what organization structure is best for your needs.

What is Organizational Structure?

An organizational structure is a modeling system companies use to organize people, build org charts, and define how employees fit within an organization.

Common Organizational Structure Types

There are virtually hundreds of organizational structure types companies can use to lay out their businesses, but there are a few favorites that modern companies return to time and time again. Here are three of the most common organizational structures:

1. Functional Organizational Structure

Functional organizational structure is the most common organization structure companies use. This popular model groups people into teams and departments based on specific functions. For example, a company’s marketing department might consist of a copywriter, a graphic designer, and an SEO strategist, all of whom fall under one marketing manager.

Simply put, these structures follow a traditional top-down approach that eventually rolls up into an overarching C-suite (think: Facebook, Amazon, Tesla).

ChartHop's functional org chart

ChartHop’s org chart visualizes your company’s functional structure by color-coordinating teams and departments.

Pros:

  • Savvy: Grouping people together based on shared knowledge sets and skills ensures departmental expertise.
  • Productivity: Rather than having to train people who aren’t familiar with certain roles, a functional organizational structure equips people to do the work they were hired to do, faster.
  • Understanding: This structure type also makes it clear to everyone — inside and outside of the department — who owns what in the business.

Cons:

  • Disconnect: The bigger businesses become, the more challenging it becomes for different departments to communicate and collaborate with each other.
  • Competition: Rather than focusing on the company objectives, team-specific objectives often take priority, weakening common goals.
  • Hindered Growth: As people become experts in their fields, it becomes difficult for them to explore other internal career paths.

2. Flat Organizational Structure

Opposite of the functional approach, flat organizational structures often have few, or no, people in middle management. In most cases, the chain of command is literally flat: there are less managerial layers, so employees and managers all work on a level playing field.

The philosophy behind the flat organizational structure eliminates seniority and red tape to distribute responsibilities and power equally across the board, giving everyone a hand in the decision-making process. Many startups begin with a flat structure but may choose to add hierarchy into the mix as they scale.

ChartHop flat org structure

ChartHop’s org chart enables you to visualize your company’s flat org structure.

Pros:

  • Collaboration: Employees have more room to communicate and collaborate with everyone in the organization, not just members of their team.
  • Agility: Less bureaucratic red tape in a flat organizational structure empowers employees to be agile and make decisions faster.
  • Cost-Efficiency: Limited seniority allows companies to save money on salaries and benefit-related expenses.

Cons:

  • Confusion: A lack of clear reporting structures and consolidated teams can lead to employee confusion over project ownership.
  • Disorder: Since everyone is doing a little bit of everything when using a flat organizational structure, jobs are less defined and boundaries are blurred, often leading to confusion and disorganization.
  • Power Struggles: A lack of management can become frustrating, sparking competition for control between employees.

3. Matrix Organizational Structure

Matrix organizational structure is a popular hybrid structure that is often used to streamline project management.

This model promotes collaboration from different teams and departments. So rather than having one manager oversee a single team, employees from different departments might report to two or three different types of managers, like a functional manager and a project manager, throughout the process.

When laid out on a physical org chart, the intersections from various teams create a grid, hence the name “matrix organizational structure.”

ChartHop matrix org structure

ChartHop’s org chart visualizes your company’s matrix structure by labeling and color-coordinating by cross-functional or project-specific teams.

Pros:

  • Teamwork: The matrix organizational structure is specifically designed to promote collaboration between departments so projects can get done more efficiently and effectively.
  • Communication: Direct, consistent feedback from multiple managers allows for better clarity and coordination compared to other structure types.
  • Opportunity: Since the matrix structure connects people from various departments and teams, people have a chance to develop new skill sets and explore more career paths.

Cons:

  • Confusion: Reporting to multiple managers can be complicated and confusing for employees, especially when it comes to defining roles and managing expectations.
  • Conflict: Competition for authority and the “final-word” can arise when two or more managers oversee a project.
  • Burnout: Under the matrix organizational structure, everyone juggles a heavy workload, often on top of their everyday responsibilities, which isn’t ideal for morale and motivation.

Other Organizational Structure Types

There are countless different types of organizational structures a company can use to build its org chart. While the above three are the most popular, below are other organizational structures to consider. 

Divisional Organizational Structure

Large enterprises especially might employ a divisional organizational structure to configure their org chart.

This structure type splits parts of the business into self-governing divisions, each with its own executive suite. This allows larger sections of the company to run with autonomy, often having their own business operations entirely, like hiring, marketing, and budgeting.

Network Organizational Structure

A network organizational structure involves two or more independent organizations partnering together in some capacity to do business. It’s not necessarily something that is displayed in an org chart, as it usually involves externally outsourced operations and contracted business agreements.

The philosophy behind a network organizational structure is simple: complete an assignment. Whether that’s manufacturing a product, shipping goods, or providing services, organizations that “network” with other businesses to complete tasks might employ this structure.

Team Organizational Structure

Team, or team-based, organizational structure refers to the business model that functions when groups of employees collaborate on teams towards a shared goal under the direction of one supervisor.

Contrary to the functional organizational structure, which groups employees based on common skills, the team organizational structure groups people depending on an explicit goal, meaning skill sets are often deliberately different.

Given the nature of this structure, it’s very dynamic and ever changing, moving people from team to team as assignments come and go. These dynamics make it advantageous for its emphasis on teamwork and collaboration, but not necessarily a feasible structure for the long-haul.

Which Organizational Structure Should I Choose?

Your organization’s structure is important when planning for the future of your business. How you decide to structure your org chart depends solely on your company’s goals, its players, and how you envision its future.

When investing in an org chart software, look into options that enable you to visualize a variety of organizational structures. That way, you have a platform that can accommodate all of your organization’s changing needs.

It all boils down to this: Whatever you choose to do, do the research, communicate your decisions effectively, and be transparent with your people so they have the tools and insights needed to ensure business success.

Your headcount planning directly affects the organizational structure of your company. That’s why it’s absolutely critical for HR to get it right. Download How to Confidently Approach Your Headcount Planning for easy understanding and actionable strategies.

Read the guide here

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