7 Types of Organizational Structures +Examples, Key Elements - Whatfix (2024)

• Digital Transformation

• PublishedMarch 15, 2022
• Updated: July 13, 2024

Organizations of all sizes require an established, organized structure to drive business outcomes. However, not all companies function best with a traditional, hierarchical organizational structure.

A lack of organizational structure (or choosing the wrong type of structure) leads to miscommunication, work delays, poor process flows, tepid employees, and other serious consequences that stunt business growth. In contrast, a robust organizational structure enables employees to coordinate teamwork, understand their tasks and responsibilities, reduce conflicts, and boost productivity.

How do you design an organizational structure that’s right for your company?

Organizational structure is the backbone of all operating procedures and workflows at any company. It determines each employee’s place and role in the business and is key to organizational development.

A clear structure allows every team member to be involved. When employees know what they’re responsible for and who they report to – which isn’t the case in many fast-growing companies – they’re more likely to take ownership of their work.

Having a documented organizational structure in place enables employes to improve efficiency and provides clarity for each individual employee and business unit. With this clarity, departments can become more focused on how their actions and goals drive business outcomes.

To build an org structure, you need to consider your business size, life cycle, goals, and positioning. Apart from considering the current environment your company operates in, you should also think of where you want to see the organization in five years, a sign of organizational health.

• Work specialization
• Departmentation
• Chain of command
• Span of control
• Centralization/Decentralization
• Formalization

Documentation is an act of grouping specialists on the basis of the job description, skills, location, or other factors that connect them.

The biggest challenge is choosing the criteria for departmentation. In many cases, it’s no more enough to apply functional departmentation – where employees are grouped based on the tasks they perform. Startups often go for matrix departmentation that involves combining two types of departmentation and takes the best out of both worlds. For instance, functional departmentation can be joined by geographical departmentation to better serve clients in different locations.

Chain of command represents a system for passing instructions and reporting within an organization. Ideally, it distributes the power, supports knowledge sharing, and encourages employee accountability.

The traditional chain of command makes decision-making more complex and does not allow for much flexibility. On the contrary, modern approaches strive to enhance employee autonomy and avoid micromanagement.

In a centralized organizational structure, decisions are made by high-level managers and are distributed down the chain of command.

Centralized organizational structures have a range of advantages, like clear responsibilities, better process governance, and a straightforward chain of command. It places decision-making responsibilities on leadership who can foresee the long-term impact of important decisions.

The biggest drawback of a centralized organizational structure is the time the decision-making process takes in large companies. For example, individual team managers must run requests up the chain of command before going forward.

For GTM and customer-facing teams, this can slow down the customer experience, resulting in missed opportunities and poor service. It can also hamper companies’ ability to innovate, with centralized organizations being less agile and nimble than decentralized ones.

Often, it’s recommended that early-stage startups and small businesses designed a centralized organizational structure.

Even in decentralized organizations, clear hierarchies still exist. The c-suite, directors, and other leadership roles still operate at a higher capabilities than new and entry-level employees. However, teams can make decisions without approval from centralized leadership, allowing them to act fast and take ownership of their areas of expertise.

This type of structure is common for fast-growing companies, companies with regional markets, and emerging industries. A decentralized structure makes it more accessible for employees to navigate different roles and work on what’s most impactful at that time in a company’s lifecycle.

The key purpose of any organizational structure is to make decision-making processes straightforward and provide clear definitions for roles and responsibilities. However, there are many ways to achieve that.

Let’s look at seven common types of enterprise organizational structures to help you decide what’s best for your company and its various departments and teams.

A functional structure groups employees into different departments by work specialization. Each department has a designated leader highly experienced in the job functions of each employee supervised by them.

Most often, it implements a top-down (centralized) decision-making process where department managers report to upper management. Ideally, leaders of different teams communicate regularly and coordinate their strategies while lower-level employees have little idea of the processes taking place outside their department.

The main challenge companies with a functional structure face is the lack of coordination between departments. Employees may lose the larger company context when focusing on very specific tasks and failing to interact with members of other departments.

To create a functional organizational structure that works, you’ll need to train leaders to foster collaboration across departments.

Examples of organizations with a functional structure include: Amazon, Starbucks.

A divisional structure organizes employees around a common product or geographical location. Divisional organizations have teams focused on a specific market or product line.

Examples of companies applying a divisional structure are McDonald’s Corporation and Disney. These brands can’t help but split the entire organization by location to be able to adjust their strategies for audiences representing different markets.

These smaller groups are relatively independent and mainly follow a decentralized framework. Still, the leaders of each department are likely to operate under centralized corporate management. It means that company culture is dictated by top management, but operational decisions can be made by each division independently.

Giants such as McDonald’s and Disney also add functional units to their structure for better control.

Examples of organizations with a divisional structure include: Disney, GM, McDonalds.

Within a matrix organizational structure, team members report to several managers at once. Wait, what’s the point?

Having multiple supervisors allows for company-wide interaction and faster project delivery. For instance, when answering to functional managers and project managers, employees have a chance to collect experience outside their team. While functional managers can help to solve job-specific issues, project managers can bring in knowledge or talents from other departments.

If you go after a matrix organizational structure, you’ll need to find a way to avoid authority confusion and prevent conflicts between managers.

Examples of organizations with a matrix structure include: Caterpillar, Phillips, Texas Instruments.

Team members are responsible for managing their workload and have full control over the project. Team-based organizations are distinguished by little formalization and high flexibility. This structure works well for global organizations and manufacturers.

Examples of organizations with a team-based structure include: Apple, Cisco, Google, Whatfix.

In a network organization, teams are built from full-time employees as well as freelance specialists – this way, in-house workers can spend most of their time focusing on the work they specialize in. Such an approach allows companies to adapt to market changes and obtain the missing skills fast.

Working with individuals that aren’t integrated into your company culture results in lower formalization and higher agility.

Examples of organizations with a network structure include: Dow Chemical, H&M, IBM

You must already have an idea of what a hierarchical structure is. It’s the most common organizational structure type that follows a direct chain of command.

A chain of command, in this case, goes from senior management to general employees through a range of executives on the departmental and team level. The highest-level executive has the highest power over the decision-making process.

On one hand, this structure enables organizations to streamline business processes, develop clear career paths, and reduce conflicts. A company hierarchy leaves no place for challenging managers’ authority, which can be good in some cases.

On the other hand, a hierarchical structure slows down decision-making and may hurt employee morale.

Examples of organizations with a hierarchical structure include: Amazon, Sony

Due to its simple nature, a flat organization structure, also called a “flatarchy”, is typically used by small businesses and startups.

Examples of organizations with a flat structure include: Value, most small businesses.

Of course, organizational design can be reconstructed if needed. The business landscape is constantly evolving, and keeping to a structure that has worked for years might simply become inefficient.

To adapt to market changes, you might need to resort to organizational transformation which affects not only your strategy but also the structure. Whether you want to build an organizational structure from scratch or want to revisit the existing one, you’ll need to get down to the basics.

First of all, you need to prepare documentation.

You need a project charter outlining the purpose of building a clear structure, key stakeholders, and their responsibilities. This is your rough plan for implementing an organizational structure that should give you a direction for your next steps.

When creating a charter, you’ll be able to answer the following questions:

• Why do we need to design (or re-design) an organizational structure?
• When do we start?
• Who are the key stakeholders in this project?
• What should we do first?
• Where is the company headed? Will our organizational structure be relevant in a year?

If your business has already been operating for quite some time, take a look at your current strategy and try to highlight the areas of improvement. Do you need to revisit your core ideology and company culture? You can only answer this question by talking to your employees and managers.

When you know where you stand and have a clear vision of what you want to achieve, creating an organizational direction shouldn’t be a problem.

A clear understanding of your company’s strategy lets you filter out irrelevant organizational structure types and pick the one that fits with your core values, mission, and goals.

Choose one of the seven organizational structures and use it as a template for designing a custom organizational chart. This chart is also known as an organogram – it’s a diagram used to visualize the relationships between individuals, teams, and departments within an organization

Next, it’s time to design an optimal workflow for implementing or switching to a new structure.

Talk to the stakeholders and decide on the deadlines for establishing a brand new organizational structure. Prepare a list of recommendations for top managers and team leaders that will help to communicate the change to the rest of the organization.

The transition process might take months, and it’s very likely that the performance of individual employees or even entire teams will go down at some point. However, you can assess the impact of a new structure in action only after the transition is complete.

With a new organizational structure in place, run the performance review and talk to executives. It’s important that you monitor the contribution of each individual department – chances are the changes don’t work equally well for everyone at the company.

Again, once you implement an organizational structure, it’s never too late to make adjustments. Alongside performance checks, survey your employees to learn how they feel about a new structure. It can be that their input will help you fine-tune the organizational design without extra cost and effort.

Additional resources for driving organizational success

Ready to learn more about building healthy, innovative organizations? These resources can help:

• Types of Organizational Change
• Overcoming Resistance to Change
• Employee Training Methods
• Digital Transformation Challenges