Types Of Business Organizational Structures – Small or big, every organization should work with a defined organizational structure. A well thought out and strategic business configuration clarifies reporting relationships and supports good communication – resulting in efficient and effective workflows.
The board and senior management should be a group that determines the type of organizational structure that will best support internal operations, work practices, and chain of command.
Types Of Business Organizational Structures
Senior management looks at all functions and decides how they want to organize and implement work activities. This process also identifies natural reporting relationships and chains of command. Reporting relationships can be both vertical and horizontal.
Organizational Chart Of Robots Manufacturers, Inc.
Organizations using a traditional hierarchical structure rely on a vertical chain of command as the primary method of organizing employees and their responsibilities. The military, government, and other very large organizations use hierarchies to determine the level of control employees have at work, as well as their rank in relation to others.
Hierarchical structures often have multiple levels of management and are therefore prone to bureaucracy and the creation of silos that inhibit teamwork.
Companies with a flat or horizontal structure have fewer management or executives than employees. Most people who have worked for a small company like a startup have experienced this type of structure. At most, there is a layer of middle managers between managers and employees, but often there are no middle managers in the company.
The advantage of a horizontal structure is that it gives employees more responsibility, which requires them to be more transparent within the larger organization. It also removes the bureaucratic nature of large hierarchical structures, enabling faster decision-making and implementation.
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A disadvantage of a flat structure is that it requires multidisciplinary professionals who do not want to specialize. Middle managers are also stretched within this structure because they will oversee a wide variety of professionals and projects.
A matrix structure provides both horizontal and vertical reporting levels. Employees may be part of a functional group (ie, an engineer), but may serve on a team that supports new product development (ie, a new album). In this type of structure, members from different groups can work together to develop a new product line.
For example, a recording engineer working for a music label may have engineers reporting to him, but may use his expertise and work with teams to develop new music albums.
Functional organizational structures are the most common. This type of structure groups individuals according to the specific tasks they perform. Shared departments such as human resources, accounting and purchasing are organized by separating each of these areas and managing them independently from the others.
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For example, all managers of different functional areas report to a director or vice president who is responsible for all functional areas.
The advantage of this type of structure is that functions are separated by expertise, but challenges arise when different functional areas become silos that focus only on their area of responsibility and do not support the work of other departments.
Another common structure is to organize by specific product type. Each product group falls under the reporting structure of a manager and that person oversees everything related to that product line.
For example, a Kraft product executive would be responsible for every product under that label—toppings, meats, sauces, etc.
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The advantage of this type of structure is that it organizes products by category, but can create processes completely independent of other product lines in the organization.
Some industries will be organized by customer type. This is done to ensure that specific customer expectations are met with a tailored service approach.
An example of this can be given in health care. A patient seen as an outpatient has very different needs than a patient who spends time as an inpatient. A client-centered design creates customized care for those patients.
The advantage of this type of structure is that it specializes in the needs of each customer group, but may ignore the needs of different types of customers.
Organizational Structure: Types, Definition And Examples
For organizations that span a range of geographic regions, sometimes it makes sense to organize by region. This is done to better support the differences in logistics requirements and geographical needs of customers.
A structure usually organized by geographical regions reporting to a central supervisory person. You see this type of structure in companies that cross city or state boundaries, and their customers may be across the country or in multiple states.
Network organizational structures work for businesses that employ freelancers, subcontractors, and salespeople distributed across satellite offices. This type of structure organizes the proper distribution of the company’s resources. Employees can see workflows, processes and relationships with on-site and off-site colleagues.
The communication inherent in networked organizational structures encourages employees to collaborate to complete projects. Since there is no rigid hierarchy, employees have the right to take initiative and make decisions.
Reading: The Organization Chart And Reporting Structure
The advantage of network organizational structure is that it emphasizes free communication of employees in the workplace in relation to hierarchy. No chain of command. This allows employees to know each other’s involvement in the project so they can easily collaborate.
Deliberate time and thought should be put into creating an organizational structure and organizational chart. This is important so that employees have a visual insight into how the organization works and understand the chain of command. Working within a defined structure, with good communication processes and workflows, helps ensure efficient management of resources – people, time and money.
Create an org chart today by importing your people data or simply drag and drop people into the org chart. Workforce planning is easy because you can create multiple versions of your org chart and share private links with colleagues to collaborate. When you’re ready to share with your employees, give everyone a secure link to the org chart so they can see your organization’s reporting structure and intuitive employee profiles.
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We make it easy to structure your business and add transparency for all levels of employees. After collecting data from thousands of org charts, we invite you to take a look at our pre-made org chart templates designed with your industry in mind. At some point, you’ve probably seen an organizational chart for your company. And we can guess what it looked like.
A typical organizational chart looks like a pyramid, with your C-level executives at the top followed by middle management and finally staff-level employees.
But not every company does best with a hierarchical organizational structure. There are many types of organizational charts because there are many types of organizational structures.
Let’s look at seven common types of organizational structures and reasons why you might consider each.
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The pyramid-shaped organizational chart we mentioned earlier is known as a hierarchical organizational chart. This is the most common type of organizational structure – the chain of command runs from the top (eg CEO or manager) to the bottom (eg entry and lower level employees), and each employee has a supervisor.
Similar to a hierarchical organizational structure, a functional organizational structure starts with the positions with the highest level of responsibility at the top and descends from there. First of all, employees are organized according to their specific skills and related functions in the company. Each separate section is managed separately.
A horizontal or flat organizational structure favors companies with multiple levels between senior management and staff-level employees. Many new businesses use a horizontal organizational structure before creating different departments, but some organizations maintain this structure because it encourages less supervision and greater participation by all employees.
In departmental organizational structures, company departments have control over their own resources, essentially operating as their own company within the larger organization. Each department has its own marketing team, sales team, IT team etc. This structure works well for large companies because it allows different departments to make decisions without each reporting to some executive.
Types Of Organizational Structures In Business, Illustrated
Segments are separated by market, industry or customer type. A large FMCG company like Target or Walmart may separate its durable goods (apparel, electronics, furniture, etc.) from its food or logistics divisions.
Divisions are separated by product lines. For example, a technology company may have a division dedicated to its cloud offerings, while other divisions focus on different software offerings — for example, Adobe and its creative suite Illustrator, Photoshop, InDesign, etc.
Divisions are separated by regions, regions or districts, offering more efficient localization and logistics. Companies can set up satellite offices across the country or around the world to be closer to their customers.
A matrix organizational chart looks like a grid and shows cross-functional teams formed for specific projects. For example, an engineer may be associated with the engineering department on a regular basis (under the director of engineering) but work on a temporary project (under the project manager). Matrix organizational chart