8 Types of Business Organizational Structures [+ Free Downloadable Org Charts]
5 minutes • Jun 25, 2021General
Large or small, every organization should operate 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 work process flow.
The board and senior leadership should be the group who determines the type of organizational structure that would best support the internal operations, how work is carried out and the chain-of-command.
Determining the best structure is done by answering the questions:
What are the functional groupings of work processes?
Are there natural groupings of teams, work groups or units?
Senior leadership looks at all functions and determines how they would like work activities to be organized and carried out. This process also identifies natural reporting relationships and chain-of-command. Reporting relationships can be both vertical as well as horizontal.
8 Common Business Organizational Structures
1. Hierarchical Organizational Structure
Organizations that use a traditional hierarchical structure rely on a vertical chain of command as the prime method of organizing employees and their responsibilities. Military, government, and other very large organizations use a hierarchy to determine the level of control employees have over their work as well as their rank relative to others.
Hierarchical structures typically feature multiple layers of management and are therefore prone to bureaucracy and the creation of silos that prevent cross-team collaboration.
An example of hierarchical organizational structures:
Pros:
Easy layout to understand
Communicate reporting relationships
Built-in understanding of future promotion opportunities
Cons:
Prone to bureaucracy
Can create organizational silos
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2. Flat or Horizontal Organizational Structure
Companies with flat or horizontal structures often have fewer levels of management or executives over employees. Most people that have worked for a small company such as a startup will have experienced this type of structure. At most, there is one layer of middle managers between an executive(s) and employees, but oftentimes there are no middle managers present at the company.
The advantage of a horizontal structure is that it gives employees more responsibilities which in turn requires them to have more transparency within the greater organization. It also removes the bureaucratic nature of large hierarchical structures, allowing for quick decisions to be made and executed on.
The disadvantage of a flat structure is that it requires multidisciplinary professionals who don’t desire to specialize. Middle managers also have a tendency to be stretched thin within this structure as they’ll be overseeing many types of professionals and projects.
Recommended Reading: Hierarchical vs. Flat Organizational Structures and Benefits of Each
Pros:
Employees often receive more responsibilities
Requires employees given more transparency
Allows for quick communication and decision making
Cons:
Challenging for employees to specialize
Managers can easily be stretched thin in this structure
3. Matrix Organizational Structure
A matrix structure provides for reporting levels both horizontally as well as vertically. Employees may be part of a functional group (i.e. engineer) but may serve on a team that supports new product development (i.e. new album). This kind of structure may have members of different groups working together to develop a new product line.
For example, a recording engineer who works for a music publisher, may have engineers who report to him but may also use his expertise and work with teams to develop new music albums.
Pros:
Easily allow cross-functional work between teams
Gives employees opportunity via their department projects and for organizational projects
Cons:
Employees might have multiple managers at one time
Requires employees to make more difficult prioritization decisions
4. Functional Organizational Structure
Functional organizational structures are the most common. A structure of this type groups individuals by specific functions performed. Common departments such as human resources, accounting and purchasing are organized by separating each of these areas and managing them independently of the others.
For example, managers of different functional areas all report up to one director or vice president who has responsibility for all of the operational areas.
The advantage of this type of structure is that functions are separated by expertise but the challenges comes in when different functional areas turn into silos that focus only on their area of responsibility and don’t support the function of other departments.
An example of functional organizational structures:
Pros:
Most common and therefore understood by employees
Departments have plenty of specialized expertise
Cons:
Prone to Silos
Employees may feel it’s not their responsibility to oversee that their work or project is successfully handed off to the other team
Ready to build your own functional organizational chart?
5. Product Organizational Structure
Another common structure is to be organized by a specific product type. Each product group falls within the reporting structure of an executive and that person oversees everything related to that particular product line.
For example, an executive over Kraft products would be responsible for every product under that label – dressings, meats, sauces, etc.
The advantage of this type of structure is that it organizes products by category but can create completely separate processes from other product lines within the organization.
An example of product organizational structures:
Pros:
Organizes products by categories
Focus on specific market segments
Allows for specialization
Can encourage healthy competition between departments
Cons:
Other product teams might be cut off from innovations and learning opportunities by other teams at the same company
Can create inefficient/duplicative functions and resources
Can nurture negative rivalries across departments
Ready to build your own product organizational chart?
6. Customer Organizational Structure
Certain industries will organize by customer type. This is done in an effort to ensure specific customer expectations are met by a customized service approach.
An example of this would be in healthcare. A patient seen as an outpatient has very different needs than those of patients who spend time in the hospital as inpatients. A customer centered structure 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 can ignore the needs of different customer types.
An example of customer organizational structures:
Pros:
Allows for specialization
Creates a focus on customer satisfaction
Cons:
Customer groups are not always easily defined and segmented
It can be challenging to operationalize competing customer demands
Ready to build your customer organizational chart?
7. Geographic Organizational Structure
For organizations that cover a span of geographic regions, it sometimes makes sense to organize by region. This is done to better support logistical demands and differences in geographic customer needs.
Typically a structure that is organized by geographical regions reports up to a central oversight person. You see this type of structure in companies that go beyond a city or state limit and may have customers all across the country or in multiple states.
An example of geographic organizational structures:
Pros:
Better supports logistical demands
Caters to different cultural and geographic customer expectations
Cons:
Can cause conflicts between local and central management
Duplication of jobs, resources, and functions
Ready to build your geographic organizational chart?
8. Network Organizational Structure
Network organizational structures work for businesses that employ freelancers, subcontractors, and vendors dispersed between satellite offices. This type of structure organizes the proper distribution of the company’s resources. Employees can visualize workflows, processes, and relationships with on- and off-site coworkers.
The communication inherent in network organizational structures encourages employees to collaborate to complete projects. As there isn’t a strict hierarchy, employees are empowered to take initiative and make decisions.
An advantage of the network organizational structure is that it emphasizes open employee communication in the workplace over hierarchy. There isn’t a chain of command. It lets employees know each other’s project involvement so they can easily collaborate.
An example of network organizational charts
Pros:
Encourages collaboration and communication
Employees encouraged to take the initiative in key decisions
Cons:
Requires more complex relationships within the fluid organizational structure
Lacks easy-to-understand hierarchies
Start Building Your Organizational Structure With Pingboard
Deliberate time and thought should go into the design of an organization’s structure and the build out of an org chart. This is important so employees have a visual of how the organization functions and understands the chain-of-command. Operating within a defined structure, with good communication processes and work-flows, help to ensure efficient management of resources – people, time and money.
Build an org chart today by importing your people data into Pingboard or simply drag and drop people into the org chart. Workforce planning is easy with Pingboard because you can create multiple versions of your org chart and share a private link with colleagues for collaboration. When you are ready to share with your staff give everyone a secure link to the org chart so they can see reporting structures across your organization, and insightful employee profiles of coworkers.
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