An organizational structure outlines a company’s workforce and managerial hierarchy. While not mandatory, establishing an organizational structure helps clarify roles, expectations, and the hierarchy within the company for smoother operations.
In this article, we’ll explore different types of organizational structures and their distinct advantages and disadvantages. We’ll go through each type in detail to help you find the one that suits your organization’s specific needs.
Types of Org Structures
There are lots of different org structures that businesses can choose to use… some even create their own! While we can’t exactly list every type of structure there is (there are many!), here are 10 of the most common org structures along with their pros and cons.
1. Hierarchical Structure
The hierarchical structure is the most common type of org structure. In a hierarchical structure, employees are grouped into teams and assigned superiors such as supervisors and managers. Employees can be grouped together by their role, function, geographical location, skills, and more. Hierarchical structures are often pyramidal in shape because of the many levels of authority that exist, with the highest typically being the executive level or “C-suite”.
Pros of the hierarchical structure include:
- Clear, defined levels of authority
- Lots of scope for progression and development
- It promotes teamwork and communication
Cons of the hierarchical structure include:
- Limited collaboration between teams
- Bureaucracy that can be hard to overcome
- Limited autonomy and scope for innovation
2. Functional Structure
A functional structure divides an organization up into groups based on roles, specialities, and skills, for example marketing or backend development. This is another common type of org structure which you’ll often find in larger organizations with lots of employees. While it retains some elements of a centralized hierarchy, it’s a little more relaxed than a strict chain-of-command structure.
Pros of the functional structure include:
- Clearly defined roles and expectations
- Potential for lots of development in highly specialized departments
- More autonomy and scope for innovation within functional groups
Cons of the functional structure include:
- Functional groups tend to exist in silos which requires careful management
- Limited collaboration and innovation between groups
- Limited communication and knowledge sharing
Related: Everything You Need to Know About Functional Organizational Structures
3. Flat Structure
Flag org structures, sometimes referred to as “horizontal org structures”, eliminate most middle management levels meaning that there are fewer people between regular staff-level roles and senior management. Employees in flat organizations have more autonomy, responsibility, and decision-making power, and there’s less micromanagement and supervision from upper managers. This type of structure works very well for smaller businesses, and you’ll often find start-ups utilizing it.
Pros of the flat structure include:
- A more streamlined organization with fewer middle managers
- A faster, easier decision-making process
- Employees are empowered to innovate and work more autonomously
Cons of the flat structure include:
- Requires more planning and management to be effective
- Can cause confusion over who should be making what decisions
- Conflicts between employees can arise more easily
4. Matrix Structure
In a matrix organization, employees with similar skills are grouped together and report to two or more managers, typically a functional manager who oversees projects and a product manager who is responsible for the product being worked on. Matrix structures are typically used by larger organizations with lots of different projects because it promotes collaboration and skill sharing across departments.
Pros of the matrix structure include:
- A more flexible and responsive workforce
- Open communication and the sharing of knowledge and resources
- Improves collaboration between different teams
Cons of the matrix structure include:
- A slower decision-making process
- Scope for conflict between functional and project managers
- A lack of clarity around responsibilities
5. Divisional Structure
In a divisional structure, organizations are split into groups based on products, services, or geographic locations. Each division has its own leadership team, department, and resources such as customer support, marketing, and HR teams. A good example of a company functional/divisional style structure is Disney, which is split into four key divisions: Media Networks, Parks and Resources, Studio Entertainment, and Consumer Products.
Pros of the divisional structure include:
- Divisions can operate independently to achieve their own goals
- Employees can focus more on specific products or services
- Divisional needs can be met more quickly
Cons of the divisional structure include:
- Potential for duplicated resources (e.g., multiple HR teams)
- Decentralized and more independent decision-making
- More difficult to align divisions with core organizational goals
6. Network Structure
A network structure has a dynamic and flexible approach to organization where key functions are outsourced to external companies. It’s usually used by businesses in rapidly evolving industries or organizations needing to scale resources quickly. This structure gives companies more flexibility to focus on core competencies while leveraging external expertise.
Pros of the network structure include:
- More flexibility in terms of operations
- Allows for quicker response to market changes
- Gives employees more accountability and decision-making power
Cons of the network structure include:
- Potential communication and coordination problems due to complexity
- Can become complex when outsourcing to many external services
- May lead to unclear lines of authority
7. Team-based Structure
Instead of departments, a team-based structure organizes a company around teams to focus on project-related tasks. This structure is utilized often in creative industries, where flexibility and cross-functional collaboration are needed. This setup provides employees with decision-making power and accountability, facilitating cooperation and problem-solving.
Pros of the team-based structure include:
- Prioritizes flexibility and responsiveness
- Recognizes the value of experience more than authority or seniority
- Less need for direct management as it promotes employee accountability
Cons of the team-based structure include:
- May potentially lead to role ambiguity
- May lead to unclear career progression paths
- Requires effective inter-team coordination
8. Circular Structure
A circular structure puts the leadership in the center of a circle to promote an outward flow of information instead of top-down. This structure prioritizes transparency and equal footing among staff, which can enhance strategic alignment and shared responsibility. Organizations that use this structure want to have decentralized decision-making to promote flexibility and employee autonomy.
Pros of the circular structure include:
- Enhances communication and accessibility to leadership
- Encourages equal participation in decision-making
- Reduces barriers between management levels
Cons of the circular structure include:
- May lead to unclear lines of authority
- Potentially slower decision-making
- May lead to role ambiguity
9. Process-based Structure
A process-based structure organizes a company according to the main processes instead of departments or teams. This type of structure is focused on workflow and task completion, with each process supervised by one team leader and the rest, employees. It’s usually implemented in organizations aiming for production and operational efficiency, like manufacturing companies and service delivery firms.
Pros of the process-based structure include:
- Clear lines of authority
- Encourages continuous process improvement
- Encourages coordination across process groups
Cons of the process-based structure include:
- Potential barriers between groups
- Inflexible to changes outside core processes
- Potential to neglect areas not directly tied to process goals
10. Line Structure
The most traditional organization structure, the line structure is characterized by a clear chain of command from the upper management to the operational level. This structure is common in SMEs and organizations where strong leadership and straightforward decision-making processes are needed.
Pros of the line structure include:
- Clear and simple authority lines
- Easy decision-making and communication
- Simplified administrative overhead
Cons of the line structure include:
- Limited flexibility and adaptability
- May lead to over-centralization of power
- Employees don’t have much decision-making power
What is an Org Structure?
An org structure is a system that outlines organizational hierarchy and outlines how decisions are made and operations are directed to achieve business goals. A clear org structure helps describe the roles, responsibilities, and lines of authority that exist within a business.
Org structures also dictate how information flows between different parts of the business. How this information flows and how much authority employees at different levels of the org structure have depends on the type of org structure that’s being used.
In a hierarchical org structure, for example, decisions flow from the top downwards while in a flat or decentralized org structure, decision-making power is distributed and shared.
Org structures tend to be illustrated in an org chart, also known as an “organogram”, where employees are grouped and laid out according to the type of structure being utilized.
Centralized vs Decentralized Org Structures
An org structure is either centralized or decentralized. There are many different types of org structures that fall into both categories.
Traditionally, organizations were (and many still are) structured with centralized leadership and a clear chain of command. In this type of hierarchical structure, the organization’s senior leaders, usually the chief executives, have the most power and authority which wanes as you travel further down the chain. In this type of centralized system each role has very clear responsibilities, with subordinate roles looking to their superiors for guidance and support.
Organizational structure as a concept has evolved massively over the years, however. This has especially been the case throughout the last few decades alongside the onset of the digital age and the emergence of more “modern” and agile organizations in fields like tech.
As a result, there has been a rise in decentralized org structures. These structures enable agile companies to respond and adapt more quickly to changes within fast-paced industries like technology. While decentralized structures provide more autonomy and empower teams to make their own decisions, there will usually still be some sort of hierarchy, even if more nuanced.