4 Common Types of Organizational Structures

What does it take for companies and organizations to be successful?

There are many answers to that question. Some would say it’s having an effective mission; others would say it’s selling a product or service that’s in high demand.

Ultimately, it’s a company’s organizational structure that helps determine success.

An organizational structure is defined as “a system used to define a hierarchy within an organization. It identifies each job, its function and where it reports to within the organization.” A structure is then developed to establish how the organization operates to execute its goals.

There are many types of organizational structures. There’s the more traditional functional structure, the divisional structure, the matrix structure and the flatarchy structure. Each organizational structure comes with different advantages and disadvantages and may only work for companies or organizations in certain situations or at certain points in their life cycles.

“Poor organizational design and structure results in a bewildering morass of contradictions: confusion within roles, a lack of coordination among functions, failure to share ideas, and slow decision making bring managers unnecessary complexity, stress and conflict,” wrote Gill Corkindale in the Harvard Business Review. “Often those at the top of an organization are oblivious to these problems or, worse, pass them off as challenges to overcome or opportunities to develop.”

Ultimately, it’s important to get a group’s organizational structure correct in order for its aims to be successful.

Types of Organizational Structures

Functional

If you’ve had a job, you likely worked in a functional organizational structure.

The functional structure is based on an organization being divided up into smaller groups with specific tasks or roles. For example, a company could have a group working in information technology, another in marketing and another in finance.

Each department has a manager or director who answers to an executive a level up in the hierarchy who may oversee multiple departments. One such example is a director of marketing who supervises the marketing department and answers to a vice president who is in charge of the marketing, finance and IT divisions.

An advantage of this structure is employees are grouped by skill set and function, allowing them to focus their collective energies on executing their roles as a department.

One of the challenges this structure presents is a lack of inter-departmental communication, with most issues and discussions taking place at the managerial level among individual departments. For example, one department working with another on a project may have different expectations or details for its specific job, which could lead to issues down the road.

In addition, with groups paired by job function, there’s the possibility employees can develop “tunnel vision” — seeing the company solely through the lens of the employee’s job function.

Divisional

Larger companies that operate across several horizontal objectives sometimes use a divisional organizational structure.

This structure allows for much more autonomy among groups within the organization. One example of this is a company like General Electric. GE has many different divisions including aviation, transportation, currents, digital and renewable energy, among others.

Under this structure, each division essentially operates as its own company, controlling its own resources and how much money it spends on certain projects or aspects of the division.

Additionally, within this structure, divisions could also be created geographically, with a company having divisions in North America, Europe, East Asia, etc.

This type of structure offers greater flexibility to a large company with many divisions, allowing each one to operate as its own company with one or two people reporting to the parent company’s chief executive officer or upper management staff. Instead of having all programs approved at the very top levels, those questions can be answered at the divisional level.

A downside to this type of organizational structure is that by focusing on divisions, employees working in the same function in different divisions may be unable to communicate well between divisions. This structure also raises issues with accounting practices and may have tax implications.

Matrix

A hybrid organizational structure, the matrix structure is a blend of the functional organizational structure and the projectized organizational structure.

In the matrix structure, employees may report to two or more bosses depending on the situation or project. For example, under normal functional circumstances, an engineer at a large engineering firm could work for one boss, but a new project may arise where that engineer’s expertise is needed. For the duration of that project, the employee would also report to that project’s manager, as well as his or her boss for all other daily tasks.

The matrix structure is challenging because it can be tough reporting to multiple bosses and knowing what to communicate to them. That’s why it’s very important for the employees to know their roles, responsibilities and work priorities.

Advantages of this structure is that employees can share their knowledge across the different functional divisions, allowing for better communication and understanding of each function’s role. And by working across functions, employees can broaden their skills and knowledge, leading to professional growth within the company.

On the other hand, reporting to multiple managers may add confusion and conflict between managers over what should be reported. And if priorities are not clearly defined, employees, too, may get confused about their roles.

Flatarchy

While the previous three types of organizational structures may work for some organizations, another hybrid organizational structure may be better for startups or small companies.

Blending a functional structure and a flat structure results in a flatarchy organizational structure, which allows for more decision making among the levels of an organization and, overall, flattens out the vertical appearance of a hierarchy.

The best example of this structure within a company is if the organization has an internal incubator or innovation program. Within this system, the company can operate in an existing structure, but employees at any level are encouraged to suggest ideas and run with them, potentially creating new flat teams. Lockheed Martin, according to Forbes, was famous for its skunkworks project, which helped develop the design of a spy plane.

Google, Adobe, LinkedIn and many other companies have internal incubators where employees are encouraged to be creative and innovative in order to promote the company’s overall growth.

A benefit of this system is it allows for more innovation company-wide, as well as eliminating red tape that could stall innovation in a functional structure. As for the negatives, the structure could be confusing and inconvenient if everyone involved doesn’t agree on how the structure should be organized.