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

Aug 23, 2023
Reading time: 7 min

Whether you’re a small start-up with five employees or a sprawling enterprise composed of thousands of people, having a defined approach to organizational structure gives everyone clear roles and responsibilities.

A lack of organizational structure – especially on large or cross-functional teams – can result in misdirected product offerings and 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.

Identifying the right organizational structure type for your company is the first step toward building a well-oiled machine that aligns employee productivity with customer needs.

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

What is Organizational Structure?

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

What are the Most Common Types of Organizational Structures?

There are virtually hundreds of ways companies can structure their business, but three of the most common types of organizational structures are functional, flat, matrix, and team – each of which has its own pros and cons.

1. Functional Organizational Structure

Functional organizational structure is the most common approach 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.

functional organizational structure example

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

Pros of a functional organizational structure:

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

Cons of a functional organizational structure:

  • Disconnect: The bigger the business becomes, the more challenging it becomes for different departments to communicate and collaborate with each other.
  • Competition: Rather than focusing on the company objectives, function-specific objectives often take priority, weakening common goals.
  • Hindered Internal Mobility: 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 everyone works on a level playing field.

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.

flat organizational structure example

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

Pros of a flat organizational structure:

  • 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 of a flat organizational structure:

  • Confusion: 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.
  • Irregular feedback: A flat organizational structure has very few managers, which means those managers have an extremely large span of control. In turn, this can lead to performance management challenges due to irregular feedback cadences.
  • 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 functional teams. So rather than having one manager oversee a single functional team like Sales, employees might report to two different types of managers, like a functional manager and a project manager.

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

Pros of a matrix organizational structure:

  • Collaboration: 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 communication compared to other structure types.
  • Internal Mobility: Since the matrix organization structure connects employees from various functional teams, people have a chance to develop new skill sets and explore more career paths.

Cons of a matrix organizational structure:

  • Confusion: Reporting to multiple managers can be 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 team member.
  • 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.

4. Team Organizational Structure

A team, or team-based, organizational structure refers to a team of employees working toward 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. The nature of this organizational structure is very dynamic and ever-changing, moving people from team to team as assignments come and go.

Pros of a team organizational structure:

  • Collaboration: Much like the matrix organizational structure, the team structure is also designed to promote collaboration by removing barriers between people with different skills.
  • Problem-solving: With tighter collaboration comes faster and more effective knowledge sharing. This allows teams to identify problems and introduce potential solutions faster.
  • Employee engagement: A team organizational structure can help boost employee engagement by constantly giving people new opportunities and challenges to stay motivated.

Cons of a team organizational structure:

  • Confusion: With teams constantly changing as projects get completed, it’s easy to become confused about who’s working on what and with whom.
  • Irregular feedback: Working with different people for shorter bursts of time also makes it harder to get consistent performance feedback, especially when tracking an individual’s growth over time.
  • Lack of career progression: As teams and roles shift with projects, it becomes harder to set a clear career path for individuals, which can make it challenging for employees to understand what long-term growth might look like.

What are Additional Organizational Structure Types to Consider?

While the functional, flat, matrix, and team structures are the most common organizational structure types, there are countless options to consider based on your company’s needs. Consider the following:

Divisional Organizational Structure

The divisional organizational structure is especially beneficial for large enterprises.

This organizational structure type splits parts of the business into self-governing divisions, each with its own executive suite and even their own business operations. This allows larger sections of the company to run with autonomy. For example, consider an enterprise that has divisions for distinct product lines (such as one for footwear and one for clothing), each of which has its own Marketing team, its own Talent Acquisition team, and so on.

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 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.

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 on your company’s goals, team members, 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 structure types. That way, you have a platform that can accommodate all of your organization’s changing needs.

Whatever you choose, do the research, communicate your decisions, and be transparent with your people so they have the insights needed to ensure business success.

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

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