What are the 3 types of organizational structure?

1. Functional

A functional structure is simply one that divides a company by specialty. Typical departments are HR, sales, marketing, customer service, accounting, etc. Employees are grouped together based on the similarity of the activities they perform.

Some obvious advantages of this type of organization are that the various groups can concentrate on their particular area of focus and learn, grow and improve from their proximity to each other. It also avoids situations where work is being duplicated because it’s easier to assign or distribute work within the group.

One criticism of this type of structure is that groups can become siloed and a lack of interaction between departments can sometimes lead to a lack of cooperation if interdepartmental relations are not properly cultivated.

.

2. Divisional

A divisional structure can divide a company into different products or services of that company. For example, a company like Ford might be broken down into market segments like trucks, SUVs, hybrids etc. They operate independently as separate profit centers for the business. 

Divisional structures may also make sense for companies that are geographically dispersed so the company can serve the specificities of that market with its own self-contained product, accounting and legal expertise. An advantage of this structure is that management is responsible for their units and divisions and those that are not performing are easily identified and removed without greatly affecting the overall performance of the organization. Having divisions devoted to certain specific products, services or geographies hold the advantage of being able to serve the customer with a focused, specialized fit to their needs.

.

.

3. Matrix

Matrix structures can be more complex. Employees can have multiple bosses. Perhaps one boss for a specific project and another for the division they originally report to. The matrix structure is flexible, pulling upon the strengths of each employee and placing them where they are most needed in the organization. Of course, having multiple bosses can sometimes result in confusion particularly when conflicting priorities and responsibilities are at play. Visualizing the dotted line relationships in an org chart can be helpful in identifying and resolving those confusions. 

.

Our organization charting software, OrgChart Platinum and OrgChart Now, allow you to visualize and manage all three types of structures. Try our free demo to optimize the company structure you have in place or predict the future with new organizational structures using “what-if” scenario planning. Can you imagine testing out a new structure working for your company? .

References

4 Common Types of Organizational Structure (https://www.allbusiness.com/4-common-types-organizational-structures-103745-1.html)

What are the 4 Types of Organizational Structures? (https://www.hierarchystructure.com/types-organizational-structures/)

Benefits and Disadvantages of a Functional Organizational Structure (https://smallbusiness.chron.com/benefits-disadvantages-functional-organizational-structure-11944.html)

The Advantages of Divisional structure in Organizations (https://smallbusiness.chron.com/advantages-divisional-structure-organizations-26170.html)

×

Start Your OrgChart Trial Today!

Δ

×

Request a Demo of OrgChart Now!

Δ

Tags: matrix chart, Matrix style chart, organizational change, organizational charts, Organizational Planning, organizational structure, OrgChart Platinum, Workforce Planning

An organizational structure is a system that outlines how certain activities are directed in order to achieve the goals of an organization. These activities can include rules, roles, and responsibilities.

The organizational structure also determines how information flows between levels within the company. For example, in a centralized structure, decisions flow from the top down, while in a decentralized structure, decision-making power is distributed among various levels of the organization. Having an organizational structure in place allows companies to remain efficient and focused.

Key Takeaways

• An organizational structure outlines how certain activities are directed to achieve the goals of an organization.
• Successful organizational structures define each employee's job and how it fits within the overall system.
• A centralized structure has a defined chain of command, while decentralized structures give almost every employee receiving a high level of personal agency.
• Types of organizational structures include functional, divisional, flatarchy, and matrix structures.
• Senior leaders should consider a variety of factors before deciding which type of organization is best for their business, including the business goals, industry, and culture of the company.

Understanding an Organizational Structure

Businesses of all shapes and sizes use organizational structures heavily. They define a specific hierarchy within an organization. A successful organizational structure defines each employee's job and how it fits within the overall system. Put simply, the organizational structure lays out who does what so the company can meet its objectives.

This structuring provides a company with a visual representation of how it is shaped and how it can best move forward in achieving its goals. Organizational structures are normally illustrated in some sort of chart or diagram like a pyramid, where the most powerful members of the organization sit at the top, while those with the least amount of power are at the bottom.

Not having a formal structure in place may prove difficult for certain organizations. For instance, employees may have difficulty knowing to whom they should report. That can lead to uncertainty as to who is responsible for what in the organization.

Having a structure in place can help with efficiency and provide clarity for everyone at every level. That also means each and every department can be more productive, as they are likely to be more focused on energy and time.

Centralized vs. Decentralized Organizational Structures

An organizational structure is either centralized or decentralized. Traditionally, organizations have been structured with centralized leadership and a defined chain of command. The military is an organization famous for its highly centralized structure, with a long and specific hierarchy of superiors and subordinates. In a centralized organizational system, there are very clear responsibilities for each role, with subordinate roles defaulting to the guidance of their superiors.

There has been a rise in decentralized organizations, as is the case with many technology startups. This allows companies to remain fast, agile, and adaptable, with almost every employee receiving a high level of personal agency. For example, Johnson & Johnson is a company that's known for its decentralized structure.

As a large company with over 200 business units and brands that function in sometimes very different industries, each operates autonomously. Even in decentralized companies, there are still usually built-in hierarchies (such as the chief operating officer operating at a higher level than an entry-level associate). However, teams are empowered to make their own decisions and come to the best conclusion without necessarily getting "approval" from up top.

Types of Organizational Structures

Functional Structure

Four types of common organizational structures are implemented in the real world. The first and most common is a functional structure. This is also referred to as a bureaucratic organizational structure and breaks up a company based on the specialization of its workforce. Most small-to-medium-sized businesses implement a functional structure. Dividing the firm into departments consisting of marketing, sales, and operations is the act of using a bureaucratic organizational structure.

Divisional or Multidivisional Structure

The second type is common among large companies with many business units. Called the divisional or multidivisional (M-Form) structure, a company that uses this method structures its leadership team based on the products, projects, or subsidiaries they operate. A good example of this structure is Johnson & Johnson. With thousands of products and lines of business, the company structures itself so each business unit operates as its own company with its own president.

Divisions may also be designated geographically in addition to specialization. For instance, a global corporation may have a North American Division and a European Division.

Team-Based

Similar to divisional or functional structures, team-based organizations segregate into close-knit teams of employees that serve particular goals and functions, but where each team is a unit that contains both leaders and workers.

Flat (Flatarchy) Structure

Flatarchy, also known as a horizontal structure, is relatively newer, and is used among many startups. As the name alludes, it flattens the hierarchy and chain of command and gives its employees a lot of autonomy. Companies that use this type of structure have a high speed of implementation.

Matrix Structure

Firms can also have a matrix structure. It is also the most confusing and the least used. This structure matrixes employees across different superiors, divisions, or departments. An employee working for a matrixed company, for example, may have duties in both sales and customer service.

Circular Structure

Circular structures are hierarchical, but they are said to be circular as it places higher-level employees and managers at the center of the organization with concentric rings expanding outward, which contain lower-level employees and staff. This way of organizing is intended to encourage open communication and collaboration among the different ranks.

Network Structure

The network structure organizes contractors and third-party vendors to carry out certain key functions. It features a relatively small headquarters with geographically-dispersed satellite offices, along with key functions outsourced to other firms and consultants.

Benefits of Organizational Structures

Putting an organizational structure in place can be very beneficial to a company. The structure not only defines a company's hierarchy but also allows the firm to lay out the pay structure for its employees. By putting the organizational structure in place, the firm can decide salary grades and ranges for each position.

The structure also makes operations more efficient and much more effective. By separating employees and functions into different departments, the company can perform different operations at once seamlessly.

In addition, a very clear organizational structure informs employees on how best to get their jobs done. For example, in a hierarchical organization, employees will have to work harder at buying favor or courting those with decision-making power. In a decentralized organization, employees must take on more initiative and bring creative problem solving to the table. This can also help set expectations for how employees can track their own growth within a company and emphasize a certain set of skills—as well as for potential employees to gauge if such a company would be a good fit with their own interests and work styles.

What Are Some Types of Organizational Structures?

The four types of organizational structures are functional, multi-divisional, flat, and matrix structures. Others include circular, team-based, and network structures.

What Are the Key Elements of an Organizational Structure?

Key elements of an organizational structure include how certain activities are directed in order to achieve the goals of an organization, such as rules, roles, responsibilities, and how information flows between levels within the company.

What Is an Organizational Structure Example?

An example of an organizational structure is a decentralized structure, which gives individuals and teams high degrees of autonomy without needing a core team to regularly approve business decisions. A good example of this decentralized structure is Johnson & Johnson. With thousands of products and lines of business, the company structures itself so each business unit operates as its own company with its own president.

What Is an Organizational Structure Chart?

Organizational structures are normally illustrated in some sort of chart or diagram like a pyramid, where the most powerful members of the organization sit at the top, while those with the least amount of power are at the bottom.

What Is the Best Organizational Structure?

There is no one best organizational structure, as it depends on the nature of the company and the industry it operates in.

The Bottom Line

There are entire fields of study based on how to optimize and best structure organizations to be the most effective and productive. Senior leaders should consider a variety of factors before deciding which type of organization is best for their business, including the business goals, industry, and culture of the company.

What are the 3 types of organizations?

What are the 3 characteristics of organizational structures?

What are the types of Organisational structure?

What are the 4 types of organizational structures?