Types of Organization – Structure of Organization

Published by: Hitesh Bhasin

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A particular set of regulations, associations, duties, and capacities help sketch the action plan of an organization, which in turn aids in achieving the company’s goals. This entire set is called an organizational structure.

Organizational structures are an essential element in shaping the leadership hierarchy in any company and how the data flows within the company.

A company’s decision-making power can either belong to the core center or be distributed equally. Therefore, organizational structures can either be decentralized or centralized when it comes to holding the authority in the company.

Every organizational structure comes with its own sets of pros and cons. Thus when selecting an organizational structure best suited for your firm, it is imperative to consider all of these advantages and disadvantages. The best organizational structure ensures that functional and project managers are well aware of their reporting relationships.

Types of Organization structures

Types of Organization structures

1. Hierarchical structure

The hierarchical organizational structure is one of the easiest found types of organizational structures. It is commonly found that employees are clubbed together to form groups. This grouping may depend on geography, the utility or responsibilities of the employees or the types of services and products provided. These segregated groups are overlooked by the assigned supervisors. The hierarchal structure follows this exact format.

This grouping may depend on geography, the function or role of the employees, or the types of services and products that are provided.

Because there are different levels of authority in a traditional hierarchy, the hierarchal structure is best depicted as a pyramid. The highest level of authority is at the peak of the pyramid, with their subordinates following in the next section and their junior employee following them.

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The advantages of the hierarchal structure are as follows

  • It encourages allegiance towards the department and helps with cooperation.
  • Increases the scope of growth in employees and provides multiple chances at promotion.
  • Distinct stages of authority are established unmistakably.

Possible drawbacks could be

  • Innovation is curbed.
  • Collaboration or partnership is limited restricted.
  • Creates a need to manage the bureaucracy.

2. Functional structure

Often, a company may have multiple departments segregated based on expertise, responsibilities, and positions. The departments are then managed by the department heads known as managers. In addition, these departments and their functional managers are often overseen by a supervisor whose responsibility is to look over multiple departments like the sales department, marketing department, finance department, etc., at the same time. This type of organizational structure is called a Functional structure.

In such structures, the organization has faith that the department employees have the knowledge and skillfulness needed to support the organization’s goals. Thus, a functional structure can prove to be highly valuable.

Advantages of a Functional structure

  • Promotes gaining expertise and growth of talents.
  • Enables efficiency and enhancement of performance.
  • Defining distinct responsibilities and anticipations

Potential disadvantages include

  • Restricting teamwork and creativity.
  • Restricting the exchange of information and communication between departments.
  • Obstructing functionality.

3. Matrix structure

If you look at the matrix organizational structure carefully, it is very similar to a grid, hence the name. In the matrix structure, all the employees with abilities that are alike are congregated together.

Employees are generally accountable to more than one manager in a matrix organization. One manager supervises assignments and their progress while the other looks after the success of products and the company’s strategies. The former are called functional and product managers, while the latter are known as product managers.

Giant, multinational organizations, actively use the matrix structure. This org structure stimulates the active distribution of information and expertise across all sections. This has a huge positive impact on the achievement of goals.

Advantages of this structure consist of:

  • Improves and facilitates communication and communal resources.
  • Nurturing well-adjusted policymaking and authoritative procedure.
  • Facilitating an adaptable office atmosphere.

Disadvantages of this structure consist of:

  • KPIs or key performance indicators effectiveness gets restrictive.
  • Keeping a record of resources and funding becomes a hassle.
  • It could create a misperception of authority.

4. Flat structure

There is not much distance between top-level management and other employees in a flat organizational structure. This is because a lot of the middle-level management is removed. The decision-making power is not concentrated. Hence they feel more in control without any supervision or stress from the hierarchy. As a result, a high level of productivity is seen. Early-stage start-ups and Small companies commonly use this organizational structure as they have lesser projects and employees. It is also called a “horizontal structure.”

Advantages of a flat structure consist

  • The decision-making process becomes easier and faster.
  • It creates good connections between bosses and employees.
  • No middle management results in low expenditure.

Drawbacks a flat structure comprise of

  • Resolution of clashes needs an exigency plan.
  • Misunderstanding over authoritative voice.
  • It needs detailed planning in order for it to succeed.

5. Divisional structure

In a divisional structure, companies are divided into segments. These divisions are based on locations, goods, or services. In addition, every segment has personalized funding, administrative management, and its own departmental sections.

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Large umbrella companies that own various smaller businesses or have branches in multiple locations spread out over a larger geographic area use this type of organizational structure frequently.

For instance, if a giant software firm segments itself on the basis of its product offerings, there could be multiple different

departments like a personal computing software division, a company software division, and a cloud software division.

Advantages

  • Encouraging emphasis on particular goods or service offerings.
  • Every department’s requisites are fulfilled almost instantly.
  • It gives freedom to the subdivisions to work independently.

Disadvantages

  • The decision-making power is dispersed.
  • Actions or resources may be repeated.
  • Restricts scaling.

6. Network structure

In an organization following the network organizational structure, the job of a supervisor is to harmonize connections with all units, inner and outer, in order to create and distribute their merchandise or services.

Creating Social networks of honest and open communication and relationships with all units involved is of utmost importance to network structure. Hierarchy takes a backseat in this type of organizational structure.

To understand this better, let’s take an example of a retail company selling clothes. This company will concentrate only on the sale of clothing items. The designing and manufacturing of these clothing items can be a sub-contractor to other firms within a partnership.

Advantages

  • Outsourcing helps the company reduce its overhead charges.
  • The organization can concentrate on what is important and forget the rest.
  • Increases the scope of elasticity and dexterity

Disadvantages

  • Management becomes a challenging task due to complexity.
  • There could be misunderstandings about tasks and responsibilities.
  • There could be a replication of funds and services.

7. Line structure

One of the types of organization is the line structure. This is where the power moves from the top level in the hierarchy to the bottom. Every department is self-sufficient and works to push the companies fundamental objective. It is one of the most unpretentious organizational structure types which provides no supportive or expert services. Instead, general managers organize and supervise the departments in this type of organization. All employees in every department are answerable to their managers.

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Advantages

  • Pliable enough to acclimatize with shifting circumstances and settings.
  • The flow of command and individual duties are unmistakably distinct.
  • Creates a controlled atmosphere with functional communication.

Disadvantages

  • Too much authority lies with the manager.
  • Fear of becoming obstinate and unyielding.

8. Team-based structure

In organizations with a team-based structure, although everybody makes efforts towards a communal objective, personnel is divided into groups based on skills. These skill-based groups handle detailed and particular tasks. Creative problem-solving and teamwork are the two main characteristics of this structure. Employees have the freedom to move between teams as they finish tasks with each group.

Advantages

  • Concentration on experience and not on superiority creates fluidity.
  • Less management means more decision-making authority.
  • Destroying barriers helps restructure company procedures.
  • Disadvantages:
  • The probability of clashes rises.
  • Reduced uniformity in the company.
  • Restrictive interaction with other roles.

9. Project based structure

An organization deals with one assignment at a time in a projectized structure organization. This is a more consolidated structure. The responsibilities of a project manager project managers include decision-making, resource allotment, and supervision. Once an assignment is completed, the teams are then immobilized. This structure has a definite chain of command. The chain of command can be visualized in a project-based structure template.

Advantages

  • Growth in adaptability and fluidity.
  • Teamwork amongst staff intensifies as there is an increased resolution for project completion.
  • Create effectual communication and decision-making.

Disadvantages

  • Derails long-term talent expansion in employees.
  • Chances of consolidated authority with the project manager increase.
  • Employees pressure with severe due dates might increase.

How to Choose from Different Types of Organizations

1. Size & Scale

While contemplating the correct type of organization for the company, a significant deciding factor is its size.

Sizable companies have added staff and need extra managers. Therefore powerful outlines are needed for their smooth running. In such situations, a matrix organization is perfect. Medium or small-sized companies don’t feel the need for an elaborate structure.

2. Life Cycle

The second determining factor will be the life cycle of the company. A structure that permits development and fluidity is crucial for a growing operation.

3. Macroenvironment

The business environment is the next unavoidable and crucial factor.

A steady organizational structure is adjustable for a fluid business where the market constantly changes due to varying customer needs.

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The Importance of Proper Types of Organization Structure

Employee Performance

1. Elevated Employee Performance

A disorganized company will create confusion about job performance and accountability. An outlined organizational structure helps clarify business goals to all shareholders and employees. It also helps the senior executives to either delegate projects and wait for results or provide enthusiastic backing to their workforce. All of this is conditional on the type of organizational structure the company chooses for itself.

2. Coordinated Communication

While creating an organization, all its branches, subdivisions, and employees must find it easy to synchronize their efforts. This requires open channels of communication.

3. Focus on Organizational Priorities

Setting priorities is highly crucial for a business. In a pyramid-like hierarchical structure, the most critical of the goals are regulated by the senior management. After this, the department heads can distribute the various resources while also delegating the plan of action.

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Article by:

Hitesh Bhasin

Hitesh Bhasin is the CEO of Digiaide and his vision is to make business knowledge accessible to everyone.