What are the common types of organizational structures?

To run more efficiently, a business may implement an organizational structure in its workplace. Depending on the size of the company and the way it operates, some structures might be more beneficial than others. Knowing how your company operates will help you perform in line with what’s expected of you and help you become a better employee overall.

In this article, we define organizational structures, including their various types and the purpose and benefits of using them.

What is an organizational structure?

An organizational structure details how certain activities are delegated toward achieving an organization’s goal. It outlines an employee’s role and various responsibilities within a company. The more authority employees have, the higher up they’ll be on the organizational structure. In addition, the more organized a structure is, the more efficiently a company operates.

Types of organizational structures

There are four types of organizational structures. Understanding how they work and what their benefits and drawbacks are can help you make a more informed decision as to which to implement in your workplace. The four types are:

1. Functional structure

In a functional structure, organizations are divided into specialized groups with specific roles and duties. A functional structure is also known as a bureaucratic organizational structure and is commonly found in small to medium-sized businesses. Most people in the workforce have experience working in this type of organizational structure. For example, many companies divide their organization into various departments such as finance, marketing and human resources. Each of these departments then has a manager who oversees it. This manager is then supervised by an administrator or executive who oversees multiple departments.

Advantages of this structure may include:

• Employees grouped by skill
• Greater sense of teamwork

Disadvantages of this structure may include:

• Lack of communication with other departments
• Unhealthy competition
• Management issues

2. Divisional structure

In a divisional structure, various teams work alongside each other toward a single, common goal. Each of these divisions has an executive who manages how that branch operates, controls its budgets and allocates its resources. Large companies employ this type of organizational structure. One example of the divisional structure is a car company that separates its company into SUV, electric or sedan vehicle branches. While each branch has its own function, they all work toward the same goal of making a sale. This is also known as the multi-divisional structure.

Advantages of this structure may include:

• Focus on a single good or service
• More centralized leadership

Disadvantages of this structure may include:

• Poor integration with other divisions
• Competition between divisions
• Lack of communication between divisions
• Potential tax implications

3. Flatarchy

In a flatarchy, there are little to no levels of management. A company using this structure could have only one manager in between its executive and all other employees. It is called a flatarchy because it is a hybrid of a hierarchy and a flat organization. This type of organizational structure is used more by smaller companies since they have fewer employees, though it can be used in companies of all sizes. While some companies grow out of this organizational structure, others continue to use it.

Advantages of this structure may include:

• Cost-efficient
• Fosters good communication
• Higher employee morale
• Faster decision making

Disadvantages of this structure may include:

• Potential employee conflict
• Leadership confusion

4. Matrix structure

In the matrix style of organizational structure, employees are divided into teams that report to two managers—a project or product manager along with a functional manager. In essence, a matrix structure is a combination of various organizational structures. Because these teams have two managers, a matrix structure promotes duality and the sharing of resources. Employees working for companies using the matrix structure have the potential to widen their skill set since they might be assigned to various projects requiring different levels of expertise or skills.

Advantages of this structure may include:

• Fosters open dialogue
• Flexible workplace environment

Disadvantages of this structure may include:

• Leadership confusion
• Conflicting leadership loyalties
• Potentially more costly
• Roles may not be clearly defined
• Potentially heavy employee workload