Key Organizational Structures Every Professional Should Understand

Whether you're a small start-up with five employees or a massive company with thousands of employees, with a defined approach to organizational structure, everyone has clear roles and responsibilities.

A lack of organizational structure - especially in large or cross-functional teams - can lead to misguided product offerings and employees struggling to take ownership of their workflows. In this way, business results are a byproduct of a company's organizational structure.

Identifying the right organizational structure for your business is the first step to building a well-functioning machine that balances employee productivity with customer needs.

Read on to find out which organizational structure is best for your needs.

What is an Organizational Structure?

Organizational structure is a modeling system that companies use to organize employees, create organizational charts, and define how employees fit into a company.

What are the most common types of organizational structures?

There are virtually hundreds of ways companies can structure their business, but three of the most common types of organizational structures are functional, flat, matrix, and team-oriented - each of which has its own advantages and disadvantages.

1.Functional organizational structure

Functional organizational structure is the most common approach that companies use. In this popular model, employees are divided into teams and departments based on specific functions. For example, a company's marketing department might consist of a copywriter, a graphic designer, and an SEO strategist, all reporting to a marketing manager.

Simply put, these structures follow a traditional top-down approach that eventually leads to an overarching C-suite.

Advantages of a functional organizational structure:

Expertise: Grouping employees based on shared knowledge and skills ensures department-specific expertise.
Productivity: With a functional organizational structure, employees are able to complete the tasks for which they were hired more quickly and do not have to train employees who are not familiar with certain tasks.
Personal responsibility: With this type of structure, it is clear to everyone - inside and outside the department - who is responsible for what in the company.

Disadvantages of a functional organizational structure:

Decoupling: The larger the company becomes, the more difficult it becomes for the different departments to communicate and work together.
Competition: Instead of focusing on company goals, function-specific goals often take precedence, weakening shared goals.
Impaired internal mobility: As employees become experts in their field, it becomes difficult for them to explore other internal career paths.

2.Flat organizational structure

In contrast to the functional approach, in flat organizational structures there are often few or no middle management employees. In most cases, the chain of command is literally flat: there are fewer levels of management, so everyone works on the same level.

The flat organizational structure eliminates seniority and bureaucratic hurdles to distribute responsibilities and power evenly among everyone and give everyone the opportunity to participate in the decision-making process. Many start-ups start with a flat structure, but can build in hierarchies over time.

Advantages of a flat organizational structure:

Collaboration: Employees have more opportunities to communicate and collaborate with all members of the company, not just members of their team.
Agility: Fewer bureaucratic hurdles in a flat organizational structure allow employees to be agile and make decisions faster.
Cost efficiency: Limited length of service allows companies to save money on salaries and benefits.

Disadvantages of a flat organizational structure:

Confusion: Because everyone does a little bit of everything in a flat organizational structure, tasks are less clearly defined and boundaries become blurred, often leading to confusion and disorganization.
Irregular feedback: In a flat organizational structure, there are very few managers, which means those managers have an extremely large span of control. This, in turn, can lead to performance management issues due to irregular feedback.
Power struggles: A lack of leadership can be frustrating and trigger competition for control among employees.

3.Matrix organizational structure

The matrix organizational structure is a popular hybrid structure often used to streamline project management.

This model promotes collaboration between different functional teams. Instead of a manager overseeing a single functional team such as sales, employees can report to two different types of managers, such as:to a functional manager and a project manager.

In a physical organizational chart, the intersections of the various functional teams form a grid, hence the name "matrix organizational structure."

Advantages of a matrix organizational structure:

Collaboration: The matrix organizational structure is specifically designed to promote collaboration between departments so that projects can be carried out more efficiently and effectively.
Communication: Direct, consistent feedback from multiple managers allows for better communication compared to other structures.
Internal mobility: Because the matrix organizational structure connects employees from different functional teams, employees have the opportunity to develop new skills and pursue further career paths.

Disadvantages of a Matrix Organizational Structure:

Confusion: Reporting to multiple managers can be confusing for employees, especially when it comes to defining roles and managing expectations.
Conflict: When two or more managers oversee a team member, competition for authority and the "final word" can occur.
Burnout: In a matrix organizational structure, everyone is juggling a heavy workload, often on top of their everyday tasks, which doesn't exactly have a positive impact on morale and motivation.

4.Team organizational structure

A team-based organizational structure refers to a team of employees working toward a common goal under the direction of a manager.

Unlike the functional organizational structure, in which employees are grouped based on common skills, in the team organizational structure, employees are grouped depending on a specific goal, the skills are often deliberately different. This organizational structure is very dynamic and is subject to constant change as employees move from team to team depending on the task.

Advantages of a team organizational structure:

Collaboration: Similar to the matrix organizational structure, the team structure is designed to promote collaboration by removing barriers between people with different skills.
Problem solving: Closer collaboration leads to faster and more effective knowledge sharing. This allows teams to identify problems and introduce potential solutions more quickly.
Employee engagement: A team organizational structure can promote employee engagement by constantly providing them with new opportunities and challenges to stay motivated.

Disadvantages of a team organizational structure:

Confusion: Because teams are constantly changing as projects are completed, it can easily become confusing about who is working on what with whom.
Irregular feedback: Working with different people over shorter periods of time also makes it harder to get consistent performance feedback, especially when it comes to tracking a person's development over time.
Lack of career progression: As teams and roles change with projects, it becomes more difficult to define a clear career path for individuals, which can make it difficult for employees to understand what long-term development might look like.

What other types of organizational structures need to be considered?

Although functional, flat, matrix, and team structures are the most common organizational structures, there are countless options to consider depending on your company's needs. Consider the following:

Departmental organizational structure

The departmental organizational structure is particularly advantageous for large companies.

With this form of organization, parts of the company are divided into self-managing departments, each with its own management level and even its own business processes. In this way, larger parts of the company can be managed autonomously. For example, let's take a company that has divisions for different product lines (e.g. one for shoes and one for clothing), each of which has its own marketing team, talent acquisition team, etc.

Network organizational structure

A network organizational structure is where two or more independent organizations work together in some form to conduct business. It is not necessarily represented on an organizational chart as it typically involves outsourced activities and contractual business arrangements.

The philosophy behind a network organizational structure is simple: accomplish a task. Whether it is producing a product, shipping goods, or providing services, organizations that are "networked" with other companies to accomplish tasks can use this structure.

Which organizational structure should I choose?

The structure of your business is important for planning the future of your business. How you structure your organizational chart depends on your company's goals, team members, and your vision for the future.

When investing in organizational chart software, you should look for options that allow you to visualize a variety of organizational structures. This way, you have a platform that can meet all the changing needs of your business.

Whatever you choose, do your research, communicate your decisions, and be transparent with your employees so they have the insights they need to ensure business success.

Choosing the right organizational structure is pivotal for success. Consider your goals, team dynamics, and vision. Explore options with IceHrm for streamlined workflow management.