9 Types of Organizational Structure Every Company Should Consider
When it comes to running a successful business, having the right organizational structure in place is crucial. It not only determines how your company operates, but also how it responds to change and how it communicates internally.
Four Basic Elements of Organizational Structure
Chain of Command
The chain of command refers to the hierarchy of authority within an organization, from the CEO at the top to entry-level employees at the bottom. It establishes who holds decision-making power and who reports to whom.
Departmentation divides a company into specific divisions or functions, such as finance or marketing. This helps to create specialized teams with a common goal or objective.
Span of Control
The span of control refers to the number of employees a manager or supervisor oversees. A narrower span of control means closer supervision, while a wider span of control allows for more autonomy amongst team members.
Centralization refers to the level of decision-making power that is concentrated at the top of the chain of command. A highly centralized organization means that decisions are made by a select group of individuals, while a more decentralized structure allows for decision-making power to be distributed throughout the company.
Mechanistic vs. Organic Organizational Structures
The mechanistic organizational structure is highly bureaucratic and hierarchical, with strict rules and procedures in place. It is best suited for stable and predictable environments.
An organic organizational structure is more flexible and adaptable, allowing for more collaboration and creativity within teams. It is best suited for dynamic and constantly changing industries.
Types of Organizational Structure
1. Functional Organizational Structure
The functional organizational structure is grouped by departments based on function, such as finance, marketing, and operations. It is best suited for smaller companies or those with a narrow product or service offering.
2. Product-Based Divisional Structure
The product-based divisional structure is organized by individual products or services offered by a company. Each division is responsible for producing, marketing, and selling their specific product or service. It is best suited for larger companies with a diverse product offering.
3. Market-Based Divisional Structure
The market-based divisional structure is organized based on specific customer groups or markets, such as geographic location or industry. It is best suited for companies with distinct markets and customer segments.
4. Geographical Divisional Structure
The geographical divisional structure is organized by geographic location or region. Each division is responsible for the sales and marketing of their specific region. It is best suited for larger companies with a national or global presence.
5. Process-Based Structure
The process-based structure is organized based on specific business processes, such as manufacturing or customer service. It allows for increased efficiency and specialization within teams. It is best suited for companies with a specific product or service offering and a focus on operational efficiency.
6. Matrix Structure
The matrix structure combines elements of functional and divisional structures, allowing for both functional specialization and a focus on specific products or services. It is best suited for complex projects or companies with a diverse product offering.
7. Circular Structure
The circular structure is organized around a central team or leader, with each team member having equal decision-making power. It allows for increased collaboration and creativity within teams. It is best suited for smaller companies or creative industries.
8. Flat Structure
The flat structure has a minimal hierarchy, with a focus on collaboration and teamwork amongst all employees. It is best suited for startups or companies with a small team and a focus on innovation and creativity.
9. Network Structure
The network structure is organized around a central hub or core team, with external teams or individuals being brought in on a project-by-project basis. It allows for increased flexibility and agility within teams. It is best suited for companies with a large network of external partners or collaborators.
Organizational Structure: Things to Know
What is an organizational structure chart?
An organizational structure chart is a visual representation of the company's hierarchy of authority and departmental structure. It outlines who reports to whom and outlines the chain of command.
Why is having an organizational structure important?
Having an organizational structure in place helps to establish clear lines of communication and decision-making. It also helps to create specific roles and responsibilities for employees, which can increase accountability and productivity.
What is the best organizational structure?
There is no one-size-fits-all answer to this question. The best organizational structure will depend on a number of factors, including company size, industry, and business goals. It's important to consider all options and choose a structure that aligns with your company's needs and objectives.
What are the four basic forms of organizational structure?
The four basic forms of organizational structure are functional, divisional, matrix, and network structures.
How do businesses determine organizational structure?
Businesses determine organizational structure by considering their size, industry, and business goals. They may also consult with experts or conduct research to determine the best structure for their company.
Navigating Organizational Structures
Navigating organizational structures can be complex and challenging, but it's important for the success of any business. Understanding the various types of organizational structures and how they function is crucial for effective communication and decision-making within a company.