10 Types of organizational structures

Every successful business relies on its organizational structure to guide its operations and ensure long-term adaptability.

The structure lays the foundation for how a company runs daily, makes decisions, and improves the employee experience. A good organizational structure can be the key to success. It determines how tasks are handled and how teams communicate.

It is important to choose the right structure for your business. This guide explains organizational structure and explores ten common types.

What is an organizational structure? 

An organizational structure defines roles and responsibilities, helping companies operate efficiently and grow. A clear structure ensures employees know their tasks and who they report to, promoting accountability and ownership.

Key elements include the chain of command, departmentation, span of control, and centralization. The chain of command assigns tasks and approval paths. Departmentation groups similar roles into teams. 

The span of control shows who reports to managers, avoiding overlap. Centralization decides whether leaders or teams make decisions. Together, these elements improve communication and efficiency within the workplace.

10 Types of organizational structures for businesses

A clear organizational structure makes sure everyone knows their job. This can make employees happier and more productive.

So, here are the top ten types of structures to choose from:

1. Hierarchical organizational structure 

The hierarchical or vertical organizational structure looks like a pyramid. It has the most employees at the bottom and fewer at the top, with top management at the peak. Each level controls the one below it. It’s similar to a military ranking system, from sergeant majors to soldiers. Government agencies and healthcare organizations often use this structure.

This structure provides clear roles and responsibilities. Everyone knows their position in the hierarchy. But, its rigid nature can slow down decision-making. Each decision may need to go through several layers before being made.

2. Functional organizational structure 

In a functional organizational structure, people are grouped by their jobs. For example, you might have a marketing team, a finance team, and a sales team. Each team has a leader who makes sure everyone is doing their job. This works well because everyone on the team knows what they’re doing.

This kind of organization is good for companies that need experts in certain areas, like big factories, accounting firms, or law firms. These companies need people who really know their stuff about marketing, finance, or making things.

There are good things about this kind of organization. It’s clear who’s in charge, people get better at their jobs, and they can learn new skills. But there are also bad things. Sometimes people in different teams don’t talk to each other very much, which can make it hard to work together.

3. Divisional organizational structure 

In a divisional organizational structure, each division acts like its own company. Divisions control their resources and have separate teams for marketing, sales, IT, and more. 

There are different types of divisional structures.

In a market-based structure, divisions are separated by market, industry, or customer type. For example, a company might separate its durable goods from its food or logistics divisions.

In a product-based structure, divisions are organized by product line. For example, a SaaS company might have one division for cloud products and others for software products.

In a geographic structure, divisions are based on region, territory, or district. This helps companies like multinational corporations better serve customers by staying close to them.

The pros of a divisional structure include flexibility, faster responses to changes, and more independence for each division. It allows a customized approach to different markets or products.

But, it also has cons. It can lead to duplicate resources, poor communication between headquarters and divisions, and internal competition.

4.  Matrix organizational structure 

In a matrix structure, workers report to two bosses: a functional manager and a project manager. This helps people from different teams work together and finish projects faster.

Functional managers handle day-to-day work tasks, while project managers oversee specific projects. This gives workers a chance to learn new skills and work with different teams.

This structure works well for companies that need both specialized skills and teamwork. It’s useful in fields like software development, construction, and aerospace, where different teams need to work together.

The good thing about this structure is that it’s flexible. People can be assigned to important projects, learn new skills, and finish projects faster. It also gives a good overview of the whole company.

However, there are some downsides. Sometimes, managers might disagree, and it can be unclear who’s in charge. The constant change can be tiring and frustrating for workers.

5.  Flat organizational structure 

A flat organizational structure has fewer middle managers. This means there’s a smaller gap between regular workers and top management. With more responsibility and decision-making power, employees often work harder and better.

Small companies and new businesses often use this structure, as they have fewer employees and projects to manage. Larger companies that want to be innovative and encourage teamwork can also benefit from this structure, which is also called a ‘horizontal structure.’

One big advantage is lower costs because there are fewer middle managers. This also helps build stronger relationships between workers and bosses, and decisions can be made faster and more directly.

However, this structure requires careful planning to work well. It can be confusing to know who is responsible for decisions. Companies might need backup plans to avoid problems.

6. Team-based organizational structure 

In team-based or holacratic organizational structures, teams work together to reach a common goal. This structure is more flexible and less strict than traditional hierarchies. It encourages problem-solving, decision-making, and teamwork.

One big advantage is better communication between employees. Information moves faster, leading to quicker solutions. People with different skills can learn from each other. Teams can adapt to changes easily. Companies like consulting firms, tech startups, and creative agencies often use this structure.

While there are benefits, there are also challenges. Disagreements between team members can slow things down. It can be harder to see clear paths for promotion. Moreover, it can be difficult to keep people motivated when teams, not individuals, are rewarded. Some people might not work as hard if they know others will pick up the slack.

7.  Network organizational structure 

As more companies work with freelancers, vendors, and contractors, a network structure can be helpful. This structure groups people based on their skills, not on a fixed department.

In a network organization, teams work together for a short time to achieve a specific goal. This helps ideas spread faster and makes it easier for people to work together. The company doesn’t follow strict rules or reporting lines. It uses all its resources to meet customer needs.

This structure can be complicated. It involves managing both internal and external relationships. So, it can be unclear who makes the final decisions because there’s no clear boss.

A network structure is best for companies that need to be flexible and adapt quickly. It encourages teamwork, especially for teams in different locations. Good management is key to keeping teams focused. Clear guidelines and strong coordination are needed to stay on track.

8. Process-based organizational structure 

In a process-based organizational structure, people are grouped based on the steps they take in a process. The company leader is at the top, and each step has a supervisor and workers. Work flows from one step to the next, like a conveyor belt.

This structure can make things faster and more efficient. It also helps teams work together better. However, teams can become isolated, and mistakes can happen when work is passed from one team to another.

It is also good for companies that want to be efficient and have smooth workflows. It organizes teams around specific processes, such as making products, helping customers, or filling orders.

Even more, this type of structure is useful for industries like manufacturing or businesses with complex customer journeys. It helps reduce errors and improve operations for repetitive tasks that follow standard procedures.

9. Circular organizational structure 

In a circular organizational structure, managers and bosses are at the center, while other workers are on the outside. This makes it easier for everyone to talk and work together. It breaks down the barriers between managers and workers.

This structure is good because it helps people talk openly and share ideas. Workers feel more connected to managers and understand the company’s goals. It’s great for companies that value teamwork.

However, it can be hard to know who is responsible for what. Decisions can take longer, and it might be confusing to know who’s in charge.

A circular structure works best for companies that focus on teamwork, new ideas, and being flexible. It gets rid of strict hierarchies and encourages everyone to work together. Most importantly, it treats the whole company as one big team.

10. Line organizational structure 

In a line structure, orders and decisions flow directly from the top of the company to the bottom. There are no special departments for support or specialized tasks. This simple structure divides the company into different departments, each led by a manager. These departments work independently to reach the company’s goals.

This structure has some good things. It’s easy to understand who is in charge, and everyone knows what they’re responsible for. It can also adapt quickly to changes. However, it can limit specialization, be too rigid, and give too much power to managers.

This structure works best for small businesses or parts of larger companies that perform routine tasks. It’s great for companies with simple operations and clear lines of authority. Its straightforward management style makes it easy to run.

Factors influencing the choice of organizational structure 

The way a company is organized depends on its goals, market, and how it works internally. As a company grows, it needs to change its structure to handle more work and more people.

Different stages of a company’s life, like when it’s just starting, growing, or mature, need different structures. The company’s plan for success also affects how it’s organized. Technology changes how people communicate, work together, and the kinds of jobs needed.

The market, competition, and rules can influence how flexible and adaptable the structure is. The company’s values and culture affect how decisions are made, how people communicate, and how they work. The leadership vision determines how much freedom employees have and how decisions are made. Good communication is key for smooth operations and teamwork.

Final thoughts on selecting an organizational structure 

The right type of organizational structure can help your company reach its potential. Functional structures focus on efficiency. Divisional structures are flexible. Flat structures offer agility. Choose a structure that fits your company’s needs. As your company grows, the structure may need to change. 

Small companies often benefit from informal structures where employees share ideas. Larger companies may need a formal structure for clear processes. Adding more staff will likely require new workflows. A clear hierarchy can make approvals easier. Your organizational culture should also shape the structure. Ask for feedback from your team and contractors. Less oversight may improve efficiency. Too much structure could slow things down. Finally, align the structure with your goals. Pick a setup that supports your vision.