Table of contents
When it comes to organizational structures, there is no one size fits all. Finding the right type of organizational structure is a process that involves getting to the core of your business to discover a system that fits your needs.
Some fit startups while others fit larger corporations. Often, choosing a too-tall structure can kill a startup, while a flat hierarchy can give rise to chaos in a corporation. It's all about finding the right balance.
In this guide, we’ll cover organizational structure types that fit different types of companies and guide you toward finding the most optimal structure for your organization.
Organizational structures are designs that define how an organization is structured. There are many different organizational structures. Some are divided by skill and designed with centralized control for making the best decisions, while others encourage collaboration and distribute autonomy to enable faster decisions.
Having a well-defined organizational structure is essential for any business. It is the very foundation of your organization that establishes ways of communication, defines how employees collaborate, and creates a chain of command.
There are many factors that go into choosing the right organizational structure for your needs. Some of these are:
In the following, we’ll go over four of the most widely adopted organizational structure types. We’ll highlight the advantages and disadvantages of each, and strive to guide you towards finding the right structure for your organization.
A hierarchical organizational structure is defined by its traditional, vertical design. Shaped like a pyramid, the CEO is at the top, and every layer beneath represents the management that is next in the chain of command, all the way down to the employees at the base.
There are both advantages and disadvantages to this organizational design:
Hierarchical org structures have a clear chain of command. You report to the person above you in the pyramid, that person reports to the one above them, and so forth. This establishes a foundation for effective leadership distributed across several management layers.
Unlike other organizational structures, such as the matrixed model, hierarchies are easy to implement. They are simple to understand due to their basic pyramid-like design.
In organizational structures that are delayered and flat, it can be difficult to know what promotion options are on the table — there is no clear way to move up the ranks in a horizontal hierarchy. Due to the simple nature of a vertical hierarchy, career advancement is transparent.
The hierarchical organizational structure dates thousands of years back. Ancient civilizations used hierarchies to govern people and organize armies due to the effectiveness of the system. Many newer organizational structure models have not gone through the test of time.
Having layers of management in an organization leads to slow decision-making processes. This can be devastating for a company that has to move fast to follow the pace of its industry. This is why tech companies often choose to delayer their otherwise hierarchical structure.
Critics argue that time has caught up with traditional hierarchies. Other organizational structures allow for cross-functional collaboration in a way that hierarchies do not encourage. Many argue that modern problems require solutions that are thought up interdisciplinarily.
In companies with flat hierarchies, employees often report directly to the executives. This provides a sense of respect and a feeling of autonomy from not having to be managed. Traditional hierarchies, however, will often induce a feeling of being disconnected from the leadership.
A functional organizational structure is characterized by being divided into different departments based on functions, with each department having a functional head. Unlike in a hierarchical chart, employees are organized by expertise rather than by decision-making authority.
Here are some pros and cons of the functional organizational structure:
As each employee is not individually managed, functional organizational designs allow for more flexibility and autonomy within each department, while still keeping an effective chain of command through the head of each department.
By working in their specific area of expertise, employees can focus entirely on their own field. This can increase efficiency and lead to higher satisfaction since employees do not have to work in fields they are not interested in.
As employees are grouped together by fields of expertise, it becomes easier to evaluate their performance, as employees can be measured against each other. New skill development also becomes easier, since training can be focused on a particular skill set.
Within the functional org structure, there is a risk of professional as well as social isolation. With employees being grouped together by expertise, cross-functional collaboration is not encouraged. This can also lead to social issues if teams do not socialize with others.
Innovation often happens when different perspectives meet to come up with a solution. Functional structures can prevent this creativity from unfolding, as cross-functional collaboration is discouraged with such a model.
In a flat organizational structure, layers of management are limited or completely eliminated. This is done to increase the pace of decision-making and decrease the costs associated with having layers of management. Here are a few advantages and disadvantages of this model:
A flat structure has a limited amount or no middle management at all. By limiting or removing this layer from the organization, expenses for salaries decrease and the organization can operate in a more cost-effective way.
In horizontal structures, employees enjoy a higher degree of autonomy and decision-making power than in traditional structures with layers of management. This enables faster decisions that in turn can make the organization more agile and adaptable to changes.
Flat orgs are often highly rated by employees. This is due to a variety of factors. The feeling of being trusted and respected that comes with autonomy and decision-making authority can be highly motivating. Also, flat orgs usually foster innovation and collaboration which can lead to interesting social encounters across the organization.
If a company is not founded on a flat foundation, horizontal hierarchies can be considerably harder to implement than more traditional organizational structures. This is due to the necessary delayering process where managers either have to be let go or be moved to other roles.
With the decreased layers of management, employees may not experience the same level of supervision. This can be freeing for employees enjoying autonomy, but can also lead to some employees not getting the support they need in their role.
In a hierarchical organization, it’s easy to understand what career advancement options are available. If you advance, it’ll often be to the role of the person above you in the pyramid. In flat structures, it can be difficult to know, as there is no clear way to move up in a horizontal hierarchy.
In a matrix organizational structure, employees report vertically to their functional manager and horizontally to a project manager. This model is used by companies such as Google to encourage cross-functional collaboration while maintaining an effective chain of command.
As employees report to both a functional lead and a project manager, matrix management enhances collaboration by distributing knowledge across departments like in flat organizational structures.
Within a matrixed organization, communication flows horizontally across teams as well as vertically through the functional hierarchy. The ability to communicate with functional leaders as well as cross-functional project leads can allow for better communication.
In a matrixed structure, employees have a functional manager that oversees and supports their career development. However, they also have a project-specific manager. This allows employees to work cross-functionally, which enables them to learn new skills and socialize with colleagues.
Once the information has passed through the bureaucratic layers, hierarchical structures eventually produce good decisions. The process is slow, but steady. Matrix-style structures can run into problems when two managers have decision-making authority. This can lead to power struggles between the managers and slow the process.
Employees have to report to two managers. This doubles the time spent in meetings, but also increases the risk of miscommunication and potential conflicts if the managers are not aligned.
The matrix model incorporates the need for cross-functional collaboration into a traditional framework with hierarchical reporting. This has several advantages, but it compromises cost-effectiveness as multiple managers are on the payroll.
More than 400,000 companies have their organizational chart publicly available on The Org. The platform helps companies turn candidates into colleagues and has a 40% higher response rate from candidates than traditional recruitment outreach.
Once you have picked the right solution for you among the different types of organizational structures, you can follow the guide here and start building your org chart. When you’re ready, head over here, where you’ll be guided to finalize and publish your org chart for the world to see.
The ORG helps
you hire great
Free to use – try today