Types of organizational structures
At some point, you have likely seen an organizational chart for your company. And we can probably guess what it looked like.
The typical org chart looks like a pyramid, your C-level executives at the top with lines stretching down to middle management and finally staff-level employees.
But not every company functions best with a hierarchical organizational structure. Many types of organizational charts exist because many types of organizational structures exist.
Let’s go through the seven common types of org structures and reasons why you might consider each of them.
1. Hierarchical org structure
The pyramid-shaped organizational chart we referred to earlier is known as a hierarchical org chart. It’s the most common type of organizational structure––the chain of command goes from the top (e.g., the CEO or manager) down (e.g., entry-level and low-level employees) and each employee has a supervisor.
- Better defines levels of authority and responsibility
- Shows who each person reports to or who to talk to about specific projects
- Motivates employees with clear career paths and chances for promotion
- Gives each employee a specialty
- Creates camaraderie between employees within the same department
- Can slow down innovation or important changes due to increased bureaucracy
- Can cause employees to act in interest of the department instead of the company as a whole
- Can make lower-level employees feel like they have less ownership and can’t express their ideas for the company
2. Functional org structure
Similar to a hierarchical organizational structure, a functional org structure starts with positions with the highest levels of responsibility at the top and goes down from there. Primarily, though, employees are organized according to their specific skills and their corresponding function in the company. Each separate department is managed independently.
- Allows employees to focus on their role
- Encourages specialization
- Help teams and departments feel self-determined
- Is easily scalable in any sized company
- Can create silos within an organization
- Hampers interdepartmental communication
- Obscures processes and strategies for different markets or products in a company
3. Horizontal or flat org structure
A horizontal or flat organizational structure fits companies with few levels between upper management and staff-level employees. Many start-up businesses use a horizontal org structure before they grow large enough to build out different departments, but some organizations maintain this structure since it encourages less supervision and more involvement from all employees.
- Gives employees more responsibility
- Fosters more open communication
- Improves coordination and speed of implementing new ideas
- Can create confusion since employees do not have a clear supervisor to report to
- Can produce employees with more generalized skills and knowledge
- Can be difficult to maintain once the company grows beyond start-up status
4. Divisional org structure
In divisional organizational structures, a company’s divisions have control over their own resources, essentially operating like their own company within the larger organization. Each division can have its own marketing team, sales team, IT team, etc. This structure works well for large companies as it empowers the various divisions to make decisions without everyone having to report to just a few executives.
Depending on your organization’s focus, there’s a few variations to consider.
Market-based divisional org structure
Divisions are separated by market, industry, or customer type. A large consumer goods company, like Target or Walmart, might separate its durable goods (clothing, electronics, furniture, etc.) from its food or logistics divisions.
Product-based divisional org structure
Divisions are separated by product line. For example, a tech company might have a division dedicated to its cloud offerings, while the rest of the divisions focus on the different software offerings––e.g., Adobe and its creative suite of Illustrator, Photoshop, InDesign, etc.
Geographic divisional org structure
Divisions are separated by region, territories, or districts, offering more effective localization and logistics. Companies might establish satellite offices across the country country or the globe in order to stay close to their customers.
- Helps large companies stay flexible
- Allows for a quicker response to industry changes or customer needs
- Promotes independence, autonomy, and a customized approach
- Can easily lead to duplicate resources
- Can mean muddled or insufficient communication between the headquarters and its divisions
- Can result in a company competing with itself
5. Matrix org structure
- Allows supervisors to easily choose individuals by the needs of a project
- Gives a more dynamic view of the organization
- Encourages employees to use their skills in various capacities aside from their original roles
- Presents a conflict between department managers and project managers
- Can change more frequently than other organizational chart types
6. Team-based org structure
It’ll come as no surprise that a team-based organizational structure groups employees according to (what else?) teams––think scrum teams or tiger teams. A team organizational structure is meant to disrupt the traditional hierarchy, focusing more on problem solving, cooperation, and giving employees more control.
- Increases productivity, performance, and transparency by breaking down silos
- Promotes a growth mindset
- Changes the traditional career models by getting people to move laterally
- Values experience rather than seniority
- Requires minimal management
- Fits well with agile companies with scrum or tiger teams
- Goes against many companies’ natural inclination of a purely hierarchical structure
- Might make promotional paths less clear for employees
See why forming tiger teams is a smart move for your organization.
7. Network org structure
These days, few businesses have all their services under one roof, and juggling the multitudes of vendors, subcontractors, freelancers, offsite locations, and satellite offices can get confusing. A network organizational structure makes sense of the spread of resources. It can also describe an internal structure that focuses more on open communication and relationships rather than hierarchy.
- Visualizes the complex web of onsite and offsite relationships in companies
- Allows companies to be more flexible and agile
- Give more power to all employees to collaborate, take initiative, and make decisions
- Helps employees and stakeholders understand workflows and processes
- Can quickly become overly complex when dealing with lots of offsite processes
- Can make it more difficult for employees to know who has final say
Consider the needs of your organization, including the company culture that you want to develop, and choose one of these organizational structures.
Once you've chosen the right org structure to pursue, learn the steps in the company reorganization process.