Organizational (org) structures help companies maintain clear workflows, improve communication, and collaborate productively. Choosing the best org structure for your business begins with defining how you want your business to operate and considering the different org models that enable that vision.
Typically, organizational models fall on the spectrum between mechanistic and organic. Mechanistic reporting structures are more hierarchical and use a top-down approach to reporting, managing, and delegating. Organic structures are more collaborative and flexible.
Each of these eight types of organizational structures has advantages and disadvantages, so it's important to consider which one may be right for your business.
Hierarchical org structure
The hierarchical organizational structure is the typical pyramid-shaped chart you're likely familiar with. This is the most common type of org structure, with the leadership (the board of directors or business owner) at the top of the chain of command and entry-level employees at the bottom. A hierarchical structure shows clearly who has what level of authority and responsibility. It can be informational and motivating for employees to understand the pathways to promotion and how their careers can grow.
However, a hierarchical org structure can also make lower-level managers and team members feel less invested in the company. This structure also has a tendency to create bureaucracy, which can stifle innovation.
Functional reporting structure
The functional reporting structure is one of the most common types of org structures. It groups employees together based on their function, or role, within the organization. For instance, the sales team works in one department, the information technology (IT) team in another, and the finance team works in a third group. While this structure can encourage employees to specialize in one field, it can lead to siloes that make it difficult for teams to collaborate cross-functionally.
Divisional or product reporting structure
In this reporting structure, employees are grouped by product lines, geographic region, market, or some other natural division. This type of org structure typically works best for large companies that have many products and sales channels. Each distinct division will have its own resources that allow it to manage sales, IT, marketing, and other operations.
The downside? These types of reporting structures can lead to a duplication of resources that makes scaling difficult. They may also decentralize decision-making and create bureaucratic red tape.
[Read more: How to Structure Your Management Team]
New or smaller companies often benefit from organic org structures that offer employees the chance to weigh in on decisions and contribute to the future vision of the business.
Process-based structure
Process-based org models are designed around the flow of processes that allow a business to bring a product or service to market. For instance, research and development comes before customer acquisition, which comes before order fulfillment; therefore, employees would be organized around these three processes.
This structure considers how employees interact with each other to create a flow that improves the productivity of the business. Like other structures on this list, though, this structure can also lead to siloes that prevent valuable feedback from being shared widely.
Matrix structure
The matrix structure falls closer to the organic end of the spectrum. It doesn't follow a hierarchical model. Instead, it creates dual reporting relationships for each employee. In this model, each employee reports to one person for function-based communication and a different person for product-based communication.
"The main appeal of the matrix structure is that it can provide both flexibility and more balanced decision-making (as there are two chains of command instead of just one). Having a single project overseen by more than one business line also creates opportunities for these business lines to share resources and communicate more openly with each other — things they might not otherwise be able to do regularly," wrote Hubspot.
This structure works best for companies that have multiple divisions, campaigns, and products. For instance, if a business is launching a new piece of accounting software, the sales rep may report to the software development manager as well as their own sales director.
Circular structure
Circular org charts put leaders at the center of the organization rather than at the top. Responsibility and decision-making flow out from the core rather than vertically down a chain of command. The goal is to make employees in different departments feel like part of a larger whole rather than siloed.
The drawback is that a circular structure is difficult to read.
"A circular structure can promote communication and collaboration but can also be confusing, especially for new employees, because there is no clear chain of command," reported Forbes.
Network org structure
As more companies shift to more contract-based hiring, relying on freelancers, vendors, and subcontractors, a network org structure can make sense. This workflow groups employees together based on specialization.
"Networked organizations tend to feature clusters made up of different departments, business units, or local offices, and these clusters work together on an ad-hoc basis. The company eschews strict templates for workflows and reporting relationships. Instead they focus on using the full resources of an organization to meet customer needs," explained MasterClass.
If a network org structure sounds complex, that's because it is. It attempts to make sense of the internal and external relationships within the company. But it can be difficult to know who has the final say in different workflows due to the lack of clear hierarchy.
Flat structure
A flat reporting structure is the most organic of the reporting models.
"The flat reporting structure works for organizations that have zero distinct authoritative positions. This means that decision-making is equal throughout the company, as no managers or senior-level positions exist," wrote Indeed.
The vision behind a flat structure is one of transparency and productivity. Ideally, employees feel motivated by sharing the decision-making power without the pressure of reporting to senior leadership; however, when there’s a disagreement over the direction of the business, it can be hard to find alignment and get everyone on the same page.
What's the right structure for your company?
As you design an organizational structure for your venture, consider your business's growth stage, company culture, and your strategic plan.
New or smaller companies often benefit from organic org structures that offer employees the chance to weigh in on decisions and contribute to the future vision of the business. A more formal org structure can be put in place as the company grows and matures. Adding head count to your team will likely lead to the need for new workflows; a well-communicated hierarchy facilitates these approval processes.
Company culture should also contribute to your organizational structure. Get feedback from your existing team and outside contractors you may work with. You may learn that less oversight helps everyone work more efficiently; adding a functional reporting structure could lead to bottlenecks.
Finally, think about how your org structure can best serve your strategic plan.
"For example, a small business with one or two locations is most likely going to have a different strategy than a company with dozens of branches throughout the country, and may therefore choose different organizational structures," wrote Indeed.
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