What are the 3 basic structure of organization?

The types of organizational structures in business are just as important as its products, marketing plan and long-term strategy. Businesses need a sturdy structure to attract and retain talented employees, as well as create a workable organizational hierarchy.

Typically, businesses choose from four types of organizational structure. Each comes with its own set of advantages and disadvantages. Choosing the right one for your business is imperative because poor organizational structure leads to confusion among employees, poor decision-making among managers and, ultimately, less than ideal results for a business.

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Picking The Right Organizational Structure

While there are variations, most companies are created based on one of the following four organizational structures. The goal for business leaders is picking the structure that works best for their particular situation.

Functional

A functional structure is the most traditional approach. It calls for grouping together people who do similar tasks based on their area of specialty. In other words, you’ll find all the accountants in finance and all the marketers in marketing. Managers led each area and report up to a director or executive who may oversee multiple departments.

The advantage here is clear: it provides those with similar abilities the ability to easily communicate and work on projects together. That’s also the reason this is the most popular business structure. The disadvantage is that teams may get “siloed,” unaware of what is happening in other areas of a company.

Divisional

In a divisional structure, people are grouped together based on the product or service they provide, not the work they do. For example, a large corporation such as General Electric has divisions for electronics, transportation, and aviation, each with its own team of accountants, marketers, etc. Global corporations may have divisions based on different geographic areas. On a smaller scale, a restaurant that also provides catering services may have separate divisions to oversee weddings, corporate events and business within the main restaurant.

Matrix

A matrix structure is a hybrid of the functional and divisional structures. It may involve employees reporting to different bosses depending on their current assignment. For example, a software design specialist may report to her boss in IT, but she’s also brought onto specific projects because of her expertise. When that happens, she will report to a different boss as long as that project continues.

The disadvantage is that employees may find it confusing to report to multiple bosses. But clear communication on priorities at all levels can eliminate these issues. The matrix structure requires a great deal of planning but can allow for the creation of the best possible teams to tackle the biggest challenges.

Flat

The flat structure dispenses with the usual hierarchy of a functional structure, decentralizing management and doing away with the need for middle manager bosses. Employees essentially act as their own boss, giving them the ability to communicate directly with peers on ideas and projects.

The advantage is a lot more freedom for employees, which requires a group of self-starters who don’t need managers checking up daily on their work. A flat structure is common in incubators and startups where the focus is on product and services design, not production or top-down management structures.

All four types of organizational structures in business can work well in the right situations. While most companies will choose from the functional or divisional approaches, a flat approach is becoming increasingly popular with modern companies.

1. Functional

A functional structure is simply one that divides a company by specialty. Typical departments are HR, sales, marketing, customer service, accounting, etc. Employees are grouped together based on the similarity of the activities they perform.

Some obvious advantages of this type of organization are that the various groups can concentrate on their particular area of focus and learn, grow and improve from their proximity to each other. It also avoids situations where work is being duplicated because it’s easier to assign or distribute work within the group.

One criticism of this type of structure is that groups can become siloed and a lack of interaction between departments can sometimes lead to a lack of cooperation if interdepartmental relations are not properly cultivated.

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2. Divisional

A divisional structure can divide a company into different products or services of that company. For example, a company like Ford might be broken down into market segments like trucks, SUVs, hybrids etc. They operate independently as separate profit centers for the business. 

Divisional structures may also make sense for companies that are geographically dispersed so the company can serve the specificities of that market with its own self-contained product, accounting and legal expertise. An advantage of this structure is that management is responsible for their units and divisions and those that are not performing are easily identified and removed without greatly affecting the overall performance of the organization. Having divisions devoted to certain specific products, services or geographies hold the advantage of being able to serve the customer with a focused, specialized fit to their needs.

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3. Matrix

Matrix structures can be more complex. Employees can have multiple bosses. Perhaps one boss for a specific project and another for the division they originally report to. The matrix structure is flexible, pulling upon the strengths of each employee and placing them where they are most needed in the organization. Of course, having multiple bosses can sometimes result in confusion particularly when conflicting priorities and responsibilities are at play. Visualizing the dotted line relationships in an org chart can be helpful in identifying and resolving those confusions. 

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Our organization charting software, OrgChart Platinum and OrgChart Now, allow you to visualize and manage all three types of structures. Try our free demo to optimize the company structure you have in place or predict the future with new organizational structures using “what-if” scenario planning. Can you imagine testing out a new structure working for your company? .

References

4 Common Types of Organizational Structure (https://www.allbusiness.com/4-common-types-organizational-structures-103745-1.html)

What are the 4 Types of Organizational Structures? (https://www.hierarchystructure.com/types-organizational-structures/)

Benefits and Disadvantages of a Functional Organizational Structure (https://smallbusiness.chron.com/benefits-disadvantages-functional-organizational-structure-11944.html)

The Advantages of Divisional structure in Organizations (https://smallbusiness.chron.com/advantages-divisional-structure-organizations-26170.html)

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Tags: matrix chart, Matrix style chart, organizational change, organizational charts, Organizational Planning, organizational structure, OrgChart Platinum, Workforce Planning