In the skeleton of a business’ success, the right organisational structure could arguably be called the backbone. While a strong product and an effective mission can be important factors, a company’s organisational structure is perhaps the overarching element that constitutes where your business is heading and how it’s going to get there.
Much like how each business is set up in a specific way to accomplish different goals, the structure of an organisation can help or hinder its progress toward achieving said goals. Therefore, choosing the right type of organisational structure is a massively important part of running a business.
And while each type of structure has its own advantages and disadvantages, and may only work for certain companies, getting it right can mean avoiding some of the more unnecessary complexities and conflicts that come with running a business.
To help you align your business’ aims with its success, we’ll go through the different types of organisational structure available, their pros and cons, and how they can be applied.
Perhaps the most common type of organisational structure, this departmentalises a business based on its common job functions. Businesses with this kind of structure would, for example, group all its marketers in one department, its salespeople in another, and customer service team in another.
Larger companies are particularly well-suited to this kind of structure, especially if they produce tangible goods. Smaller companies may feel constrained by the structure, so should look elsewhere.
If your business works on projects where the depth of knowledge is more important than the breadth of information, then a functional organisational structure is appropriate. Take, for example, a fundamental research and development programme; a functional organisational structure can be applied since the project is able to use the expertise of each department to its fullest.
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In this structure, employees are ranked at various levels within the organisation, with each level above the other. Except for those in positions at the very top, such as owners or directors and those in entry-level positions, employees will have both a manager and subordinates.
Hierarchical structures work well in businesses with few products that are sold at high volume since it allows for tight control which can be maintained over the design, quality, production and distribution of goods.
Say, for instance, a company makes a popular product – its only product - that’s in high demand across many different countries. The president can control the quality of this product in a single, large-scale facility, and then sell it through a chain of distributors. Therefore, a hierarchical structure can control all aspects of production and distribution.
Whereas the above two structures are more akin to a pyramid shape thanks to their tiers of supervisors and managers, a flat structure limits the levels of management in a way that all staff are in proximity to a degree of leadership. In a flat structure, there are very few tiers of seniority, with some even exhibiting no set levels. Employees will be given their key responsibilities and produce work in-line with their expertise. This gives all employees the chance to become increasingly involved in all activity and have an influence over decision-making processes.
A risk of the flat structure is that it can grant greater responsibility to inexperienced members of the team. However, it can also help breed creativity and encourage different ways of thinking throughout all areas of the business.
The flat approach is often favoured by big companies such as Google, LinkedIn and Adobe, encouraging employees to be creative and innovative to boost company growth.
Often suited to startups and small companies where there is naturally less of a hierarchy, flat structures work if the business has some sort of internal innovation programme. Within such systems, companies can continue with existing structures, but employees are free to suggest ideas and run with them, crediting new flat teams in the process.
Used by larger companies that operate in a wide geographic area or that have separate smaller organisations within an umbrella group covering different products or markets. Under this structure, each division essentially operates as its own company, controlling resources and how much money it spends on projects and aspects within said divisions.
Divisional structures are best suited to organisations that need to be near sources of supply and/or its customers. Additionally, any company with a variety in product offerings or regions of geographic operation could, in theory, thrive within a divisional structure.
In this structure, all employees have dual reporting relationships, reporting to two (or sometimes more) bosses depending on the situation or project. Typically, this takes the form of functional reporting and product-based reporting. For instance, an employee works for one boss but when a new project arises where they’re needed, they’ll then have to also report to that project’s manager too.
Matrix structures are well suited to companies that have both a diversity of products and markets and are required to complete large, complicated projects. Anything that requires vast amounts of information to be processed efficiently and the deployment of specialised knowledge quickly could benefit from matrix structures.
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