An organizational structure is a set of rules, roles, relationships and responsibilities that determine how a company’s activities should be directed to achieve its goals. It also governs the flow of information through levels of the company and outlines the reporting relationship among midlevel staff, senior management, executives and owners. It is effectively a hierarchy for a company, though some organizational structures emphasize a near-total lack of hierarchy.
Running a business means successfully delegating tasks among your employees. It also means having the final say on all projects – or, if your company is on the larger side, hiring people whom you trust enough to give full approval powers. An organizational structure for your business can help you make sense of where and with whom your company’s responsibilities lie, and you have plenty of types from which to choose.
In your research, you may at first read that there are two types of organizational structures: centralized and decentralized. However, experts have come up with eight types of organizational structures, each of which is either centralized or decentralized:
Also known as a line organization, is the most common type of organizational structure. Its chain of command is the one that likely comes to mind when you think of any company. Power flows from the board of directors down to the CEO through the rest of the company from top to bottom. This makes the hierarchical structure a centralized organizational structure.
These are some advantages of a hierarchical structure:
There are also some drawbacks of choosing a hierarchical structure:
This centralized structure greatly overlaps with the hierarchical structure. However, the role of a staff director instead falls to each department head – in other words, each department has its own staff director, who reports to the CEO.
These are some advantages of a functional structure:
These are some drawbacks of a functional structure:
The centralized structure is more common in enterprise companies with many large departments, markets, or territories. For example, a food conglomerate may operate on a divisional structure so that each of its food lines and products can have full autonomy.
These are the main advantages of a divisional organization:
These are some drawbacks to a divisional structure:
This decentralized organizational structure equates to almost all employees having equal power. At most, executives may have just a bit more authority than employees. This organizational structure is common in start-ups that take a modern approach to work or don’t yet have enough employees to divide into departments.
These are some advantages of a flat structure:
These are drawbacks of a flat structure:
This is a fluid form of the classic hierarchical structure. This centralized organization structure allows employees to move from one department to another as needed.
These are the main advantages of a matrix organization:
These are some drawbacks of a matrix organization:
This is a decentralized, but formal structure that allows department heads to collaborate with employees from other departments as needed. It is similar to a matrix structure, but there is less focus on employee fluidity than on supervisor fluidity, leading to a decentralized functional structure.
These are the advantages of a team structure:
These are some drawbacks to a team structure:
Utilised in especially large, multi-city or even international companies operating in the modern era. It organizes not just the relationships among departments in one office location, but the relationships among different locations and each location’s team of freelancers, third-party companies to whom certain tasks are outsourced, and more. While this may sound like a lot for one type of network structure to detail, this decentralized structure can be especially useful for understanding the human resources your company has on hand.
These are potential advantages of a network structure:
These are the possible drawbacks of a network structure:
The focus for this structure is on one project at a time. In this centralized organizational structure, project managers act as supervisors, not just resource allocators, and decision-makers. Unlike other structure types, a projectized structure involves the demobilization of teams and resources upon a project’s completion. But it’s like other types of organizational structures in that an obvious hierarchy exists.
These are some advantages of a projectized structure:
These are some drawbacks of a projectized structure:
When determining the right one for your company, think about how much power you would like to give your employees, how much room you would like to leave for innovation, how large your company is, and how much interaction matters to you. After weighing these factors, you’ll likely know which organizational structure is best for you.