Which of the 4 Types of Organizational Structure Is Right for Your Business?

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The structure of your business matters. Everything from productivity to communication can rely in part on how your business is set up internally.

An organizational structure is a road map that helps employees navigate a path that accomplishes your company goals. It offers guidance on rules, roles and responsibilities, and it also explains who reports to whom.

There are four types of organizational structures, and finding the right one requires some careful consideration. The first step toward selecting the right structure for your needs is to know your options. Here’s a look at four different types of organizational structures, including the potential benefits and drawbacks of each.

1. Functional[i]

A functional organization groups employees by their job skills. This type of structure in an organization has departments like human resources, marketing and accounting.

Each department usually has a manager, who reports to a higher-level executive like a vice president or operations manager. There may be several high-level executives who report to the CEO or owner. In a functional organization, there’s a clear hierarchy and sometimes a fairly tall one, meaning there are many layers between entry-level employees and the top decision-making officials.

Pros

  • There’s clearer oversight so everyone knows whom they report to
  • There’s upward mobility for those who want to stay in the company

Cons

  • Employees only function within their department, making it hard to see the big picture
  • Communication may be limited or fragmented between departments

2. Matrix[ii]

A matrix structure attempts to utilize employees’ skills as needed with a more flexible structure. An engineer, for example, might work with an assigned team on a daily basis but also work on a special project that’s overseen by a different boss. In this example, the employee has two bosses to report to, and his or her talents aren’t confined to one team.

In this model, hierarchy is more obscure. Supervisors tend to shift roles and manage different people at different times.

Pros

  • Employees grow by working outside of siloed teams
  • New challenges and tasks encourage productivity and creativity

Cons

  • Prioritizing assignments can be difficult
  • Answering to more than one boss may be a challenge for some employees

3. Flatarchy[iii]

An organization focused on innovation and eliminating the tiers of hierarchy uses a flatarchy. This model still has people “at the top,” but the organization is fueled by “flat teams” of employees that are free to generate ideas and see them through with less oversight from management or people in executive positions.

Anyone in the organization, no matter what their position, is encouraged to contribute ideas. If an idea is given the green light, a team is formed to work on it. Big-name companies like Google and LinkedIn have a similar kind of structure in which hierarchy is minimal and innovation is the focus.

Pros

  • Employees feel valued and have an incentive to innovate
  • Fewer bosses means an idea can become reality faster

Cons

  • Some employees need or prefer more structure
  • Teams can grow too large and become unproductive

4. Geographic[iv]

Companies that cover a large geographical area or that have offices in multiple locations may rely on geographic organization. As the name suggests, the structure of the company is based on the location where employees work. There might be a San Francisco team, a Dallas team and a satellite team in a small town, for example. Within each of those teams, there’s likely a manager who reports to a higher-level executive.

Hierarchy in this model exists, but it’s not as visible as other models. The Dallas team might not see the CEO on a regular basis, for example, because his or her office is in a different state.

Pros

  • Localized customer service helps the overall company grow
  • Employees have a tight regional focus

Cons

  • Invisible leadership can slow productivity
  • Employees may see a lack of professional growth on regional teams

By understanding the different types of organizational structure, you as a business owner can make an informed choice. Starting with an effective organizational structure can set your company up for future success. But don’t stop there — learn more strategies that can help your business thrive as it gains its footing.

[i] https://courses.lumenlearning.com/boundless-management/chapter/common-organizational-structures/ https://pingboard.com/blog/types-business-organizational-structures/ https://www.allbusiness.com/4-common-types-organizational-structures-103745-1.html

[ii] https://pingboard.com/blog/types-business-organizational-structures/ https://online.pointpark.edu/business/types-of-organizational-structures/ https://www.allbusiness.com/4-common-types-organizational-structures-103745-1.html

[iii] https://online.pointpark.edu/business/types-of-organizational-structures/ https://www.allbusiness.com/4-common-types-organizational-structures-103745-1.html

[iv] https://yourbusiness.azcentral.com/geographic-organization-structure-4883.html