In any type of organization that involves more than one or two people, an organizational structure is necessary for defining employee roles and responsibilities as well as establishing a chain of command and decision-making between employees and management.
An organizational chart usually depicts these roles and reporting channels graphically. There are several types of organizational structures, each of which work best for certain sizes or types of business.
Flat Organizational Structure
Flat organizational structure, sometimes referred to as horizontal structure, is a simple structure that works best for small businesses, freelancers, startups, and entrepreneurs.
On a flat organizational chart, there are no branches; employees have open communication directly with the owner or senior manager without having to go through middle management. Everyone pitches in to every aspect of running the business, and there are no specialized tasks or different departments, everything is centralized, even the decision-making process.
One advantage of this type of structure is speed, with the top management positioned to respond quickly and directly to employees and customers.
However, as the company grows, there will likely come a need to transition from this open network structure to a more formal and bureaucratic type of organizational structure with teamwork for a better workflow and flow of information.
Functional Organizational Structure
Medium-sized businesses that have employees with specialized job functions but not a lot of different products might benefit from a functional structure. This type of organization centers on job functions, with employees divided into specialized departments and reporting to a department manager or supervisor.
One disadvantage to this type of divisional structure is that there’s not much direct communication between departments or between employees and upper management.
However, this type of hierarchical structure can be efficient, as employees are able to focus on their tasks without worrying about other aspects of the business.
Product Organizational Structure
Product organization structure is best for large businesses that sell a wide product line, such as a department store. This type of structure is divided into divisions that are centered on a specific product or product category.
If the business covers multiple regions, then there might also be a separate division for each region, as with a geographical structure.
Each division has its own management and staff, which might include sales and accounting.
Lower-level employees report to the head manager of each division, who then reports to a central office or Human Resources, which ensures no duplication of duties.
Geographical Organizational Structure
Geographical structures work best for large businesses that operate in a number of geographical regions. In this type of structure, each region operates as a complete business, but a regional manager who reports to a central office oversees it.
The goals of each region are ultimately dictated by and meant to benefit the entire organization.
A large fast-food chain is a good example of the type of business that follows this type of organizational structure.
Matrix Organizational Structure
A new type of organizational structure is the matrix structure. This type of structure combines aspects of other structure types to better meet the needs of the business.
Typically, it involves a combination of functional and product structures, with employees grouped both according to job specialization and according to the product they work on.
So you might have a product group centered around “Widget A” that consists of research, engineering, sales, marketing and accounting departments, with similarly structured groups working on other products.
All team members would report to the product group manager, as well as to a department supervisor, both of whom report to upper management.