Examining Five Types of Organizational Structures in Business

As a business owner or manager, you have a great group of employees and might even be selling a fantastic product – but have you defined an organizational structure? This overarching component helps a business understand where it wants to go and how it can get there most efficiently. These structure models will map out an employee hierarchy of job functions and reporting, which can ultimately assist in streamlining areas of organization, communication, and collaboration.

There are many organizational structures to choose from, so we understand that picking one that works for your business can be an overwhelming task. What works will depend on its size, goals and function. Whether you want to define your structure for the first time or revisit an old business plan, we want to help your decision-making process by sharing some of the top types of organizational structures in business today.

Why is it Important to Define Your Organizational Structure?

The direction provided by an organizational structure can make a big difference in the overall efficiency of day-to-day business operations. Here are a few other reasons to back up the importance of this concept.

The direction provided by an organizational structure can make a big difference in the overall efficiency of day-to-day business operations. Here are a few other reasons to back up the importance of this concept.

Defines Roles & Responsibilities: Mapping out a hierarchy can help employees and their colleagues better understand who reports to who. It also helps to identify chains of responsibility and the ultimate decision-makers. 

Communication Channels: A structure can group together employees who work in intersecting departments or experience similar challenges. This practice can simplify the sharing of information and expedite issues management.

Uncover Growth Opportunities: Creating a framework for your organization can uncover flexibility in positions and projects you didn’t know existed. For example, realizing you have greater production capacity could mean new job openings or elevated roles for employees.

Five Major Types of Organizational Structure

Functional Structure

This organizational structure is the most common found in workplaces today. It appoints employees into departments based on job functions. For example, a sales team may make up their own department, while those in finance make up another. This structure allows for greater specialization among employees. It is also scalable, should there be growth opportunities. Despite its popularity, the functional structure isn’t suitable for businesses with low employee counts – they may be better served working as one unified team.

Divisional Structure

In the Divisional Structure, teams are formed by product line or region of operation. This method works best for a business with an extensive product portfolio and many sales channels. For example, there could be a division that deals with the Western and Central Canadian market and another that deals with the Eastern part of the country. Each division will have individual teams, such as different marketing and finance departments in each region. However, duplication of resources may lead to difficulty in scaling teams and the decentralization of decision-making.

Matrix Structure

Unlike the first two, this model doesn’t flow as a hierarchy. Instead, it creates a dual reporting structure for employees. What does this mean? Each employee reports to two (or more) management figures – depending on current projects. Overall, this structure provides flexibility and balanced decision-making. There are also more opportunities for inter-departmental collaboration, as employees share findings and knowledge across teams. It can be argued that this structure is most beneficial for employees, creating versatility and exposing them to new opportunities outside their comfort zones or regular working responsibilities.

Flat Structure

The flat structure, a prevalent organizational structure for small businesses, promotes equal decision-making across a company. This is because no distinct authoritative positions exist. The benefits include transparency and productivity, spurred by decision-making power that’s not influenced by or needs sign-off by senior leadership. Under this model, employees feel empowered and the reduction of ‘red tape’ can contribute to quicker progress and innovation. There may be some seniority attached to individuals, but that concept is generally kept to a minimum, especially as it pertains to project processes.

Read More: How to Set Goals for Small Business

Process-based Structure

If you’re looking for an effective small business organizational structure, a process-based model may be ideal. As the name suggests, it follows a flow of actions, which ultimately lead to a product or service launch in the market. Therefore, ideas come first, followed by development, customer acquisition and order fulfillment. Employees would be organized to tackle each task separately (in small teams) or as one unified group.

The Bottom Line: Structure Creates Efficiency

Beyond employee titles, providing an overall structure for your business and its individual departments can take things to the next level. It streamlines communication, improves productivity, and can expose flexibility you never knew existed. For employees, it can create new collaboration opportunities and the ability to try new tasks outside the original job description. As a business owner or manager, defining a structure can help set goals so you can figure out how to achieve them with the team you have. It may also lead to ideas on team expansion or repositioning. Overall, evaluating the types of organizational structure in business is a decisive step in remaining competitive and agile in an evolving consumer marketplace.