5 different types of organisational structure explained

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. 

Functional Organisational Structure

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.

What are the pros of a functional organisational structure?

• Allows for a high degree of specialisation amongst employees
• Is easily scalable should the organisation experience growth
• Skill-based departments allow employees to explore their field and identify what they’re good at
• Facilitates clear accountability of everyone’s work
• Each department has defined responsibilities, ensuring no duplication of work

What are the cons of a functional organisational structure?

• Can be inefficient if the business has a variety of products or target markets
• Can create barriers between different functions, limiting employees’ knowledge of and communication with other departments
• Departments may be distracted by departmental goals as opposed to organisational ones
• Work can become rigid and repetitive, leading to a loss of morale and enthusiasm

How can a functional organisational structure be applied?

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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Hierarchical Structure

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.

What are the pros of a hierarchical structure?

• Clearly defined positions of authority and responsibility
• Paths for promotion and progression are made clear, which boosts motivation
• Encourages the effective use of specialist managers
• Often fosters loyalty from employees to their department
• Creates a culture of loyalty towards teams, departments and the organisation as a whole
  
  

What are the cons of a hierarchical structure?

• Can be bureaucratic and result in slow responses to market and customer need
• Poor communication through the organisation, particularly between departments that are at the same level in the hierarchy
• Departments may make decisions that only benefit them as opposed to the whole organisation
• A hierarchical structure with multiple managers and departments can be expensive
• A potential disconnect between employees from different levels
• Difficult to collaborate outside of the team
  
  

How can a hierarchical structure be applied?

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. 

Flat Structure

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.

What are the pros of a flat structure?

• Greater decision-making amongst the levels of an organisation
• Reduces the red tape that sometimes gets in the way of progression and innovation
• Staff and managers are on a comparatively more equal footing
• Facilitates coordination and speed of communication
• Less need for middle management, which reduces an organisation’s overheads
  
  

What are the cons of a flat structure?

• Can create generalists instead of specialists, leaving employees’ duties unclear
• Could limit the long-term growth of an organisation as management decides against new opportunities in order to maintain the structure
• Since employees may lack a specific senior to report to, it can create confusion and possible power struggles amongst management
• Lack of executive decisions can lead to projects losing focus

How can a flat structure be applied?

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. 

Divisional Structure

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.

What are the pros of a divisional structure?

• Allows for greater flexibility within large companies
• Brings together several forms of business expertise, allowing geographical divisions to make decisions from more diverse points of view
• Comparative independence means needs can be met more rapidly
  
  

What are the cons of a divisional structure?

• Distance between divisions can make communication difficult
• The same departments across divisions may create unnecessary competition and schism between geographical locations e.g. different marketing departments competing with and weakening each other’s efforts
• Size and scope makes this structure particularly costly

How can a divisional structure be applied?

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. 

Matrix 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.

What are the pros of a matrix structure?

• Provides flexibility and more balanced decision-making
• Employees can share knowledge across different functional divisions, providing better communication and understanding of each function’s role
• Through working across functions, employees can broaden their skills and knowledge
  
  

What are the cons of a matrix structure?

• Reporting to multiple managers can create its fair share of conflict and confusion over what should be reported.
• This can lead to issues over who is responsible for what, and if things go wrong, that’s when the blame game begins

How can a matrix structure be applied?

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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