9 Types of Organizational Structure Every Company Should

Consider
Choosing the best organizational structure for your company, division, or team is a lot like
picking out a new car.

At the most basic level, you're always looking for something road-worthy — something that can
take you (and your passengers) from point A to point B without a hitch.

But beyond that, there are a lot of options to consider. Automatic or manual? Four-wheel drive or
two? Built-in GPS? Leather interior? Flux capacitor

In the world of organizational structures, the options you have to choose from include things like
chain of command (long or short?), span of control (wide or narrow?), and centralization
(centralized or decentralized decision-making?), just to name a few.
Organizational Structure

An organizational structure is a hierarchical outline of a company’s roles, teams, and employees.

Organizational structures describe what employees do, whom they report to, and how decisions
are made across the business. At a minimum, your org structure should include employees’ titles
and basic hierarchies. To put it simply, an organizational structure is like a map that simply
explains how your company works and how its roles are organized.

What's the point of an organizational structure? As a business leader, do you even need one? As
your company gets bigger, an organizational structure can also be helpful for new employees as
they learn who manages what processes at your company.

Four Basic Elements of Organizational Structure

An organizational structure typically has four essential elements;
1. Chain of Command
Your chain of command is how tasks are delegated and work is approved. An org structure
allows you to define how many "rungs of the ladder" a particular department or business line
should have. In other words, who tells whom to do what? And how are issues, requests, and
proposals communicated up and down that ladder?
2. Departmentalization

Departmentation is one of the most important elements of your organizational structure. It

clusters your teams by similar roles and responsibilities and allows you to understand how each
department connects to one another.

3. Span of Control

Your span of control can represent two things: who falls under a manager's, well, management ...
and which tasks fall under a department's responsibility. Having a defined span of control not
only avoids double-work from your different teams, but helps you identify gaps in your structure.
 4. Centralization

Centralization describes where decisions are ultimately made. Once you've established your
chain of command, you'll need to consider which people and departments have a say in each
decision. A business can lean toward centralized, where final decisions are made by just one or
two entities; or decentralized, where final decisions are made within the team or department in
charge of carrying out that decision.

Below, we'll explore how you can combine those components to form different types of
organizational structures. We'll also highlight the benefits and drawbacks of different structures.

Mechanistic vs. Organic Organizational Structures

Organizational structures fall on a spectrum, with "mechanistic" at one end and

"organic" at the other.

Take a look at the diagram below. As you'll probably be able to tell, the mechanistic structure
represents the traditional, top-down approach to organizational structure, whereas the organic
structure represents a more collaborative, flexible approach.

Here's a breakdown of both ends of the structural spectrum, their advantages and disadvantages,
and which types of businesses are suited for them.

Mechanistic Structure
Mechanistic structures, also called bureaucratic structures, are known for having narrow spans of
control, as well as high centralization, specialization, and formalization. They're also quite rigid
in what specific departments are designed and permitted to do for the company.

This organizational structure is much more formal than organic structure, using specific
standards and practices to govern every decision the business makes. And while this model does
hold staff more accountable for their work, it can become a hindrance to the creativity and agility
the organization needs to keep up with random changes in its market.
The chain of command, whether long or short, is always clear under this model. As a company
grows, it needs to make sure everyone (and every team) knows what's expected of them. Teams
collaborating with other teams as needed might help get a business off the ground in its early
stages, but sustaining that growth — with more people and projects to keep track of — will
eventually require some policymaking. In other words, keep mechanistic structure in your back
pocket ... you never know when you'll need it.
Organic Structure

Organic structures (also known as "flat" structures) are known for their wide spans of control,
decentralization, low specialization, and loose departmentalization. What's that all mean? This
model might have multiple teams answering to one person and taking on projects based on their
importance and what the team is capable of — rather than what the team is designed to do.

As you can probably tell, this organizational structure is much less formal than mechanistic, and
takes a bit of an ad-hoc approach to business needs. This can sometimes make the chain of
command, whether long or short, difficult to decipher. And as a result, leaders might give certain
projects the green light more quickly but cause confusion in a project's division of labor.

Nonetheless, the flexibility that an organic structure allows for can be extremely helpful to a
business that's navigating a fast-moving industry, or simply trying to stabilize itself after a rough
quarter. It also empowers employees to try new things and develop as professionals, making the
organization's workforce more powerful in the long run. Bottom line? Startups are often perfect
for organic structure, since they're simply trying to gain brand recognition and get their wheels
off the ground.

Types of Organizational Structure

Depending on the size of a business and its goals, the organizational structure of the team will
vary. Each type has its advantages and disadvantages; however, there is a universal benefit to
establishing a clear organizational structure. It helps employees understand their role within a
company, which enables them to manage expectations and goals.

A business needs to have an organizational structure in place to be successful. There are several
types of organizational structures commonly used by companies, nine of which we expand upon
below.

1. Functional Organizational
Structure

One of the most common types of

organizational structures, the
functional structure departmentalizes
an organization based on common job
functions.

An organization with a functional org

structure, for instance, would group all
of the marketers together in one department, group all of the salespeople together in a separate
department, and group all of the customer service people together in a third department.

The functional structure allows for a high degree of specialization for employees, and is easily
scalable should the organization grow. Also this structure is mechanistic in nature — which has
the potential to inhibit an employee's growth — putting staff in skill-based departments can still
allow them to delve deep into their field and find out what they're good at.

Disadvantages

Functional structure also has the potential to create barriers between different functions — and it
can be inefficient if the organization has a variety of different products or target markets. The
barriers created between departments can also limit peoples' knowledge of and communication
with other departments, especially those that depend on other departments to succeed.

Advantages

Functional organization increases efficiency, provides stability, and boosts accountability. It

allows departments — with employees who share similar skills and knowledge — to focus on
their specialized tasks within their respective fields. Because the roles and responsibilities of this
organizational structure example rarely change, department employees can consistently work on
similar assignments and hone their skills. The fixed structure of functional organization also
operates through management. It provides employees with a chain of command. It guides
communication between the team and keeps the team accountable.

2. Product-Based Divisional
Structure

A divisional organizational structure is comprised of multiple, smaller functional structures (i.e.

each division within a divisional structure can have its own marketing team, its own sales team,
and so on). In this case — a product-based divisional structure — each division within the
organization is dedicated to a particular product line.

This type of structure is ideal for organizations with multiple products and can help shorten
product development cycles. This allows small businesses to go to market with new offerings
fast.

Disadvantages

It can be difficult to scale under a product-based divisional structure, and the organization could
end up with duplicate resources as different divisions strive to develop new offerings.

Advantages
Companies and their employees can experience the benefits of the product-based divisional
structure. If one division performs poorly, this does not automatically translate across the
organization. Because of their separation, divisions may flourish (or fail) concurrently. This
system allows companies to mitigate risk.

3. Market-Based Divisional Structure

Another variety of the divisional

organizational structure is the market-based
structure, wherein the divisions of an
organization are based around markets,
industries, or customer types.

The market-based structure is ideal for an

organization that has products or services
that are unique to specific market segments, and is particularly effective if that organization has
advanced knowledge of those segments. This organizational structure also keeps the business
constantly aware of demand changes among its different audience segments.

Disadvantages

Too much autonomy within each market-based team can lead to divisions developing systems
that are incompatible with one another. Divisions might also end up inadvertently duplicating
activities that other divisions are already handling.

Advantages

Because this organizational structure focuses on specific market segments, it provides each
division with autonomy. The divisions work separately, which allows employees to work
independently and enables them to focus on the needs of their particular industry.

4. Geographical Divisional Structure

The geographical organizational structure

establishes its divisions based on — you
guessed it — geography. More specifically,
the divisions of a geographical structure can
include territories, regions, or districts.

This type of structure is best-suited to

organizations that need to be near sources of
supply and/or customers (e.g. for deliveries
or for on-site support). It also brings together many forms of business expertise, allowing each
geographical division to make decisions from more diverse points of view.

Disadvantages
The main downside of a geographical org structure: It can be easy for decision- making to
become decentralized, as geographic divisions (which can be hundreds, if not thousands of miles
away from corporate headquarters) often have a great deal of autonomy. And when you have
more than one marketing department — one for each region — you run the risk of creating
campaigns that compete with (and weaken) other divisions across your digital channels.

Advantages

Geographical divisions allow companies the advantage of catering to a specific customer. Based
on the differences in language, culture, and customs one would find across the world, companies
cannot necessarily expect the same operations to work in different locations. Not only does it
allow organizations to tailor their approach based on geography, but it allows the division to
react quickly and efficiently to any geographical market changes.

5. Process-Based Structure

Process-based organizational structures are

designed around the end-to-end flow of
different processes, such as "Research &
Development," "Customer Acquisition," and
"Order Fulfillment." Unlike a strictly
functional structure, a process-based structure
considers not only the activities employees
perform, but also how those different activities
interact with one another.

In order to fully understand the diagram below,

you need to look at it from left to right: The customer acquisition process can't start until you
have a fully developed product to sell. By the same token, the order fulfillment process can't start
until customers have been acquired and there are product orders to fill.

Process-based organizational structure is ideal for improving the speed and efficiency of a
business, and is best-suited for those in rapidly changing industries, as it is easily adaptable.

Disadvantages

Similar to a few other structures on this list, process-based structure can erect barriers between
the different process groups. This leads to problems communicating and handing off work to
other teams and employees.

Advantages

As mentioned, one of the most significant benefits of the process-based structure is that it
increases efficiency and speed. If Department B cannot start its processes until Department A
finishes, this compels Department A to work promptly and proficiently. This organizational
model also promotes intradepartmental (within the department) and interdepartmental (across
multiple departments) teamwork.
6. Matrix Structure

Unlike the other structures we've

looked at so far, a matrix
organizational structure doesn't
follow the traditional, hierarchical
model. Instead, all employees
(represented by the green boxes)
have dual reporting relationships.
Typically, there is a functional
reporting line (shown in blue) as
well as a product- based reporting
line (shown in yellow).

When looking at a matrix structure

org chart, solid lines represent strong, direct-reporting relationships, whereas dotted lines
indicate that the relationship is secondary, or not as strong. In our example below, it's clear that
functional reporting takes precedence over product-based reporting.

The main appeal of the matrix structure is that it can provide both flexibility and more balanced
decision-making (as there are two chains of command instead of just one). Having a single
project overseen by more than one business line also creates opportunities for these business
lines to share resources and communicate more openly with each other — things they might not
otherwise be able to do regularly.

Disadvantages

The primary pitfall of the matrix organizational structure? Complexity. The more layers of
approval employees have to go through, the more confused they can be about who they're
supposed to answer to. This confusion can ultimately cause frustration over who has authority
over which decisions and products — and who's responsible for those decisions when things go
wrong.

Advantages

An advantage of a matrix structure is that it promotes collaboration and communication. This

open line of communication ultimately allows businesses to share resources and allows
employees to develop new skills from working with different departments.

7. Flat Structure
While a more traditional organizational structure might look
more like a pyramid — with multiple tiers of supervisors,
managers and directors between staff and leadership, the flat
structure limits the levels of management so all staff are only
a few steps away from leadership. It also might not always
take the form or a pyramid, or any shape for that matter. As
we mentioned earlier, It's also a form of the "Organic
Structure" we noted above.

This structure is probably one of the most detailed, It's also

thought that employees can be more productive in an
environment where there's less hierarchy-related pressures.
This structure might also make staff feel like the managers
they do have are more like equals or team members rather
than intimidating superiors.
Disadvantages

If there's a time when teams in a flat organization disagree on

something, such as a project, it can be hard to get aligned and back on track without executive
decisions from a leader or manager. Because of how complicated the structure's design is, it can
be tricky to determine which manager an employee should go to if they need approval or an
executive decision for something. So if you do choose to have a flat organization, you should
have a clearly marked tier of management or path that employers can refer to when they run into
these scenarios.

Advantages

The elimination of middle management employees defines the flat structure type. Its advantages
are instantaneous. First, it reduces the expenses of the company. Second, it allows staff to build
direct relationships with upper management. And lastly, it shortens the decision-making process.

9. Network Structure

A network structure is often created when one company works with another to share resources
— or if your company has multiple locations with different functions and leadership. You might
also use this structure to explain your company workflows if much of your staffing or services is
outsourced to freelancers or multiple other businesses.

The structure looks nearly the same as the Divisional Structure, shown above. However, instead
of offices, it might list outsourced services or satellite locations outside of the office.

If your company doesn't do everything under one roof, this is a great way to show employees or
stakeholders how outsourcing of off-site processes work. For example, if an employee needs
help from a web developer for a blogging project and the company's web developers are
outsourced, the could look at this type of chart and know which office or which person to contact
outside of their own work location.
Disadvantages

The shape of the chart can vary based on how many companies or locations you're working with.
If it's not kept simple and clear, there may be a lot of confusion if multiple offices or freelancers
do similar things. If you do outsource or have multiple office locations, make sure your org chart
clearly states where each specific role and job function lies so someone can easily understand
your basic company processes.

Advantages

The outsourcing nature of the network structure provides companies with the advantages of
lower costs, more focus, and increased flexibility. Outsourcing allows organizations to save
money, as they don’t have to bear the expense of setting up a department for the same purpose. It
also gives companies the flexibility to change their processes and the ability to focus on their
core functions.

Organizational Structure: Things to Know

What is an organizational structure chart?

An organizational structure chart is a diagram that shows your departments, starting from C-
Suite leaders to individual contributors, as well as your company’s order of command and
decision-making flow.

Why is having an organizational structure

important?

Imagine a business that has no organizational

structure. Instantly, questions arise about the
systems and processes. Who makes the
decisions? How are employees held
accountable? What are the company’s goals?
These questions are practically impossible to
answer without a functional organizational
structure.

Organizational structure is necessary for running a successful business because it improves

workflow and efficiency, promotes communication, identifies company needs, and aligns
employees with company goals. It directly affects how a business operates daily. When a
company establishes a structure that works, the combined efforts of its employees, in conjunction
with its systems and processes, allow the company to make better decisions for its future.

What is the best organizational structure?

The best organizational structure varies from business to business and largely depends on your
team size, company type, and product offerings. That said, a functional organizational structure
(also named “traditional line organizational structure” or “hierarchical structure”) is an excellent
place to start if you’re not sure which org structure is right for you.
What are the four basic forms of
organizational structure?

The four basic forms of

organizational structure are
functional, divisional, matrix, and
flat structures.

Functional organizational structures

divide your company teams based on
job functions and responsibilities.

Divisional organizational structures groups your teams based on products, markets, or regions,
with smaller organizational structures for each division of your business.

Matrix organizational structures divide your company teams in a grid-based fashion, where every
team has dual reporting relationships with the C-Suite and another team.

A flat organizational structure keeps hierarchy to a minimum by eliminating middle management

and keeping individual contributors as close as possible to leadership.

How do businesses determine organizational structure?

Businesses determine organizational structure by taking stock of their current workforce and
teams, then carefully aligning their company strategy, employee feedback, and leadership goals
with a specific structure.