9 Types of Organizational Structure Every Business Should Consider

Choosing the best organizational structure for your company, department, or team is similar to choosing a new car.

At the simplest level, you are always looking for something that is roadworthy – something that can get you (and your passengers) from point A to point B with ease. In addition, there are many options that you need to consider. Automatic or manual? Four wheel drive or two? Built-in GPS? Leather interior? Flux capacitor? (Only if you go back in time, of course.)

In the world of organizational structures, you can choose between options like chain of command (long or short?), Span of control (wide or narrow?), And centralization (centralized or decentralized decision-making?) To name a few.

Organizational structure

An organizational structure is a visual diagram of a company that describes what employees do, who they report to, and how decisions are made across the company. Organizational structures can use functions, markets, products, regions or processes as guidelines and serve companies of certain sizes and industries.

What is the point of an organizational structure? As a company manager, do you even need one? As I said earlier, organizational structures help you define at least three key elements for how your business works.

As your company grows, an organizational structure can also be helpful for new employees to find out who is managing which processes in your company.

Then, when you need to pan or shift your leadership, you can imagine how the workflow would work by adjusting your organizational structure diagrams.

Put simply, this diagram is like a map that simply explains how your business works and how its roles are organized.

Each of these elements means the following for an organization:

Chain of command

Your chain of command is As Tasks are delegated and work is approved. In an organizational structure, you can define how many “rungs of the ladder” a particular department or division should have. In other words, who tells whom what to do? And how are problems, inquiries and suggestions communicated on this ladder?

Control span

Your control span can represent two things: who falls under the management of a manager … and what tasks fall under the responsibility of a department.

centralization

Describes centralization Where Decisions are ultimately made. Once you have your chain of command in place, you need to consider which people and departments can have a say in any decision. A company can tend to be centralized, where final decisions are only made by one or two entities. or decentralized, when final decisions are made within the team or department responsible for executing that decision.

You may not need an organizational structure right away, but the more products you develop and hire, the harder it will be to run your business without this important diagram.

(To delve deeper into all of these different organizational structure components, see my previous post “The 6 Building Blocks of Organizational Structure”.)

In this post, we will explore how you can combine these components to form different types of organizational structures. We’ll also highlight the pros and cons of different structure types so you can evaluate which option is best for your company, department, or team. Let’s dive in.

Mechanistic vs. organic organizational structures

Organizational structures fall on a spectrum, with “mechanistic” on one end and
“organic” on the other hand.

Take a look at the diagram below. As you can probably tell, the mechanistic structure represents the traditional top-down approach to organizational structure, while the organic structure represents a more collaborative, flexible approach.

Mechanistic and organic organizational structure compared in two diagrams side by side

Here is a breakdown of both ends of the structural spectrum, their pros and cons, and the types of businesses that are right for them.

Mechanistic structure

Mechanistic structures, also known as bureaucratic structures, are known for their tight control areas and their high level of centralization, specialization and formalization. They are also pretty strict about what certain departments are allowed to design and do for the company.

This organizational structure is much more formal than the organic structure and uses specific standards and practices to guide every decision made by the company. While this model makes employees more accountable for their jobs, it can compromise the creativity and agility the company needs to keep up with random changes in its market.

As daunting and inflexible as the mechanistic structure sounds, the chain of command, long or short, is always clear under this model. As a company grows, it needs to make sure everyone (and every team) knows what is expected of them. Teams working with other teams as needed can help get a company off the ground at an early stage. However, to keep that growth going – with more people and projects to watch out for – some policy may be required. In other words, keep the mechanistic structure in your back pocket … you never know when you will need it.

Organic structure

Organic structures (also known as “flat” structures) are known for their wide control, decentralization, low specialization, and loose departmental areas. What does it all mean? In this model, multiple teams can respond to one person and take on projects based on their importance and the team’s capabilities – not what the team is supposed to do.

As you can probably see, this organizational structure is much less formal than mechanistic, and is a little ad hoc on business needs. This can sometimes make deciphering the chain of command, long or short, difficult. As a result, executives may give the green light to certain projects more quickly, but create confusion in how a project is divided up.

Still, the flexibility that an organic structure provides can be extremely helpful for a company navigating a fast-moving industry or simply trying to stabilize after a difficult quarter. In addition, employees can try new things and develop as specialists, which makes the company’s workforce more productive in the long term. Bottom line? Startups are often perfect for organic structures as they are just trying to gain brand awareness and get their wheels rolling.

Now let’s uncover more specific types of organizational structures, most of which fall on the more traditional ones. mechanistic Side of the spectrum.

Types of organizational structure

  1. Functional organizational structure
  2. Product-based department structure
  3. Market-based department structure
  4. Geographical department structure
  5. Process-based structure
  6. Matrix structure
  7. Circular structure
  8. Flat structure
  9. Network structure

1. Functional organizational structure

As one of the most common types of organizational structure, the functional structure divides an organization based on common task functions.

For example, an organization with a functional organizational structure would put all marketers in one department, put all sales reps in a separate department, and put all customer service reps in a third department.

Functional organizational structure blue diagram

The functional structure enables a high degree of specialization for the employees and is easily scalable in the event of company growth. This structure is also of a mechanistic nature – which can inhibit the growth of an employee. When people are transferred to competency-based departments, they can still dive deep into their subject and find out what they can do.

disadvantage

The functional structure can also create barriers between different functions – and it can be inefficient if the organization has a large number of different products or target markets. The barriers created between departments can also limit people’s knowledge and communication with other departments, especially those whose success depends on other departments.

2. Product-based department structure

A departmental organizational structure is made up of several smaller functional structures (i.e., each department within a departmental structure can have its own marketing team, sales team, etc.). In this case – a product-based department structure – each department within the organization is assigned to a specific product line.

Green diagram of the product-based organizational structure of the business units

This type of structure is ideal for companies with multiple products and can help shorten product development cycles. This enables small businesses to quickly come up with new offerings.

disadvantage

It can be difficult to scale under a product-based department structure and the organization could receive duplicate resources as different departments strive to develop new offerings.

3. Market-based department structure

Another variant of the departmental organization structure is the market-based structure, in which the departments of an organization are based on markets, industries or customer types.

Pink Diagram of Divisions Organizational Structure Market Based

The market-based structure is ideal for an organization with products or services that are unique to certain market segments and is particularly effective when that organization has an advanced understanding of those segments. This organizational structure also keeps the company constantly up to date on changes in demand in the various target group segments.

disadvantage

Too much autonomy within any market-based team can result in departments developing systems that are incompatible with one another. Departments can also accidentally duplicate activities that other departments are already working on.

4. Geographical department structure

The geographic organizational structure determines its departments based on – you guessed it – geography. In particular, the subdivisions of a geographical structure can include areas, regions or districts.

Yellow organizational geographic structure diagram

This type of structure is best suited for organizations that need to be close to sources of supply and / or customers (e.g. for supplies or for on-site support). It also brings together many forms of business literacy so that each geographic department can make decisions from different angles.

disadvantage

The main disadvantage of a geographic organizational structure: It can be easy to make decisions in a decentralized manner, as geographic departments (which can be hundreds if not thousands of kilometers from corporate headquarters) often have a high degree of autonomy. And when you have more than one marketing department – one for each region – you run the risk of creating campaigns that will compete (and weaken) other departments in your digital channels.

5. Process-based structure

Process-based organizational structures are based on the end-to-end flow of various processes such as “research and development”, “customer acquisition” and “order fulfillment”. In contrast to a strictly functional structure, a process-based structure takes into account not only the activities of the employees, but also the interaction between these various activities.

To fully understand the following diagram, you need to look at it from left to right: The customer acquisition process cannot begin until you have a fully developed product for sale. For the same reason, the order fulfillment process cannot begin until customers have been won and product orders need to be fulfilled.

Orange diagram of process based organizational structure

The process-based organizational structure is ideal for improving the speed and efficiency of a company and is best suited for companies in rapidly changing industries because it is easily customizable.

disadvantage

Similar to some of the other structures on this list, a process-based structure can create barriers between different process groups. This leads to problems in communication and handing over the work to other teams and employees.

6. Matrix structure

Unlike the other structures we have considered so far, a matrix organizational structure does not follow the traditional hierarchical model. Instead, all employees (represented by the green boxes) have duplicate reporting relationships. As a rule, there is a functional report line (shown in blue) and a product-based report line (shown in yellow).

When looking at an org chart with a matrix structure, solid lines indicate strong relationships with direct reporting, while dotted lines indicate that the relationship is secondary or not as strong. In our example below, it is clear that functional reporting has priority over product-based reporting.

Teal Organizational Structure Diagram

The main appeal of the matrix structure is that it can offer both flexibility and more balanced decision making (since there are two chains of command instead of just one). When a single project is overseen by more than one business area, those business areas also have the ability to share resources and communicate more openly with each other – things they might not otherwise be able to do on a regular basis.

disadvantage

The main trap of the matrix organizational structure? Complexity. The more levels of approvers going through, the more confused they can be about who to respond to. This confusion can ultimately lead to frustration about who has authority over which decisions and products – and who is responsible for those decisions when things go wrong.

7. Circle structure

While it is drastically different from the other organizational structures highlighted in this section, the circular structure is still hierarchical, with parent employees occupying the inner rings of the circle and child employees occupying the outer rings.

That being said, the executives or leaders in a circular organization are not viewed as being seated on the organization and sending instructions down the chain of command. Instead, they are at the center of the organization and spread their vision outward.

Multicolored diagram of circular organizational structure

From an ideological point of view, a circular structure should promote communication and the free flow of information between different parts of the organization. While a traditional structure shows different departments or departments as individual, semi-autonomous branches occupying, the circular structure shows all departments as part of the same whole.

disadvantage

From a practical point of view, the circular structure can be confusing, especially for new employees. Unlike a more traditional top-down structure, a circular structure can make it difficult for employees to figure out who to report to and how to fit into the company.

8. Flat structure

While a more traditional organizational structure looks more like a pyramid – with multiple levels of supervisors, managers, and directors between employees and executives – the flat structure limits the levels of management so that all employees are only a few steps away from leadership. Also, it may not always take the shape or a pyramid or some shape. As already mentioned, it is also a form of the “organic structure” mentioned above.

Screenshot 15.08.2019 at 4.01.59 a.m.This structure is probably one of the most detailed. It is also believed that employees can be more productive in an environment where there is less hierarchical pressure. This structure could also make employees feel like the managers they have are more like peers or team members than intimidating supervisors.

disadvantage

When there is a time when teams in a flat organization disagree on something like a project, it can be difficult to align and get back on track without decisions from a leader or manager. Because of the complexity of the structural design, it can be difficult to determine which manager an employee should go to when they need approval or a management decision on something. So if you decide to go with a flat organization, you should have a clearly identified level of management or path that employers can refer to when they encounter these scenarios.

9. Network structure

A network structure is often created when one company works with another to share resources, or when your company has multiple locations with different roles and leadership skills. You can also use this structure to explain how your company works when a large proportion of your employees or services are outsourced to freelancers or several other companies.

The structure looks almost the same as the department structure shown above. However, instead of offices, it may list outsourced services or satellite locations outside the office.

If your company doesn’t do everything under one roof, there is a great way to show employees or stakeholders how outsourcing external processes works. For example, if an employee needs help from a web developer on a blogging project and the company’s web developers are outsourced, they can look at this type of diagram and know which office or person to contact outside of their own place of work.

disadvantage

The shape of the diagram can vary depending on the number of companies or locations you work with. If it’s not kept simple and clear, there can be a lot of confusion when multiple offices or freelancers do similar things. If you are outsourcing or have multiple office locations, make sure your organizational chart clearly indicates where each role and task function is so that someone can easily understand your basic business processes.

Navigating in organizational structures

This concludes our study of various types of organizational structures. Remember, we just looked at archetypes. In real applications, companies often use hybrid structures with which elements can be borrowed from several structure types.

Would you like to see some real-world examples of organizational structures for marketing teams at companies like GitHub and Rue La La? Download the full resource. An illustrated guide to organizational structures.

Further information on working in a marketing team can be found in the 6 building blocks of the organizational structure [Diagrams].

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