7 Organizational Structure Types With Examples (2024)

Organizational structure refers to the formal framework that defines how tasks, roles and responsibilities are organized and coordinated within a company. At its core, it establishes a clear and systematic arrangement of components to ensure efficient operation. The hierarchical aspect of organizational structure illustrates the levels of authority and communication within the organization. Typically, this involves a pyramid-like structure, where top-level management oversees middle management, which, in turn, supervises lower-level employees. Reporting relationships are integral, delineating how information flows through the organization and promoting effective communication.

Roles and responsibilities are distributed systematically, clarifying who is accountable for specific tasks. This facilitates the efficient allocation of resources and ensures that each employee understands their role in achieving organizational objectives.

A functional organizational structure, sometimes called a role-based structure, is where tasks and responsibilities are grouped based on specific functions or roles within the company. It’s one of the most commonly used organizational structures. A functional organizational structure starts with roles with the highest levels of responsibility at the top and then goes down from there. Departments, teams or employees are organized based on their specific roles or skills and their function within the company. Typically, each department or team is managed independently. An example of a functional organizational structure would be a company that has several separate departments, such as accounting, human resources, marketing, sales and production.

Functional organizational structure allows for specialization amongst teams and scalability while also providing a clear chain of communication and command. Examples of companies that use a functional organizational structure include Amazon and Starbucks.

Pros:

• Fosters scalability
• Promotes operational efficiency
• Allows employees to focus on their own roles
• Encourages specialization
• Helps teams and departments function independently

Cons:

• May lead to poor cross-department communication
• Can create silos in the organization
• May hinder decision making
• Narrow scope of how employee’s roles relate to company objectives

Accounting Department

The accounting department typically encompasses several key roles and functions crucial to the financial management of the organization. These roles include chief financial officer (CFO), accountants, tax specialists, financial analysts and payroll specialists to handle payroll tax.

Human Resources Department

In a functional organizational structure, the human resources department plays a crucial role in workforce organization. Typical roles within a human resources department include HR manager or director, recruiting specialist, training and development specialist, benefits and compensation manager, employee engagement and wellness coordinator, diversity and inclusion specialist and compliance specialist.

Marketing Department

Within a functional organizational structure, common marketing roles would include a marketing manager and marketing coordinator or specialist, which could be broken down into more niche roles such as social media marketing specialist, content creation specialist, campaign coordinator, SEO analyst and more. This breakdown allows for specialization within each role.

Information Technology Department

Common IT positions in a functional organizational structure include the IT Manager or Director, overseeing the overall technology strategy and infrastructure, and Systems Administrators or Network Engineers, responsible for day-to-day maintenance, troubleshooting and optimization of the organization’s IT systems. This functional arrangement ensures a focused and efficient approach to both strategic IT planning and operational support.

With a divisional organizational structure, a company’s different divisions will have control over their own resources, almost like operating as their own business under the larger corporation. This type of structure organizes employees around either a product or geographical location. Different divisions will typically focus on a specific product line or market.

Each division would have its own team of departments, such as its own marketing team, accounting department, human resources department, sales team and IT department. This is especially beneficial for large organizations that need to adjust their strategies for different audiences in their different markets. Examples of companies that use a divisional organizational structure are Disney and McDonalds.

Pros:

• Helps large companies be flexible in their operations
• Quicker responses to needs or changes that are location or product-based
• Allows teams to experiment and test different approaches and strategies
• Helps companies understand and operate in their individual markets better

Cons:

• Can lead to duplication of efforts
• A lack of broad organizational communication
• Competitions amongst departments or divisions

A matrix organizational structure combines a functional and divisional structure and shows the organization and reporting structure of cross-functional teams. Within a matrix structure, employees report to multiple managers, for example, their department and project managers. Within a matrix organizational structure, a marketing specialist and engineer may report to their individual department managers but then report to the same product manager for a specific project.

Multiple managers and a matrix organization structure allow for wider company interaction or efficient operations. Some examples of companies that successfully utilize a matrix structure include Caterpillar, Texas Instruments and Nike.

Pros:

• Ability to pull different talents into different projects
• Provides a more dynamic view of the company
• Allows employees to build skills and grow outside of their usual roles
• More efficient project management and faster deliverables

Cons:

• Can lead to authority conflicts among leaders and managers
• Frequency of role and project changes
• Conflicting objectives between managers

Team-based organizational structure is pretty self-explanatory – it groups employees together based on teams. Unlike a functional organization structure which groups employees together based on job functions, roles and skills, a team-based structure groups employees together based on a specific goal or product. A team-based structure usually goes against traditional hierarchy and provides high flexibility. This structure is typically very dynamic and ever changing, with employees moving from team to team as new goals and projects come in.

This type of organizational structure gives employees more control over their work and roles and promotes more efficiency, problem-solving and collaboration within the smaller teams. Teams are fully responsible for their own projects and workloads. Examples of companies that use a team-based organizational structure include Apple, Whole Foods and Google.

Pros:

• Promotes innovation and lateral career moves
• Experienced is valued over seniority
• More flexible with less emphasis on management
• Allows companies to be more agile

Cons:

• Goes against the traditional hierarchical structure of many companies
• Career path growth may not be clear
• No clear leadership roles or formalization

In a flat organizational structure, employees will report to multiple people, and there may also be cross-departmental responsibilities and decision-making. There are fewer middle managers between employees and top-level managers. This type of structure requires less supervision and requires more employee involvement.

Flat organizational structures are very simple and sometimes might be referred to as a flatarchy. Matrix structures can be considered a flat organizational structure. This type of structure is typically used in small businesses or start-ups. Examples of successful companies using a flat organizational structure include Google and Hubspot.

Pros:

• Increased employee responsibility and independence
• More open communication
• Clear path to decision-making
• Fast implementation process

Cons:

• Not very scalable
• Relies on one or a few people to be the decision-maker
• Leads to a lack of specialization among employees

A circular organizational structure puts leaders in the center rather than at the top so that leadership and information gets placed outward rather than trickling down the hierarchy. This structure also views employees as part of the larger whole of the organization rather than sectioning them off into their separate departments. A circular structure removes separation and looks at all departments as being a part of the bigger picture.

An example of a company that uses a circular organizational structure is MorningStar.

Pros:

• Better flow of information through the organization
• Promotes collaboration between departments
• Promotes communication between all employees

Cons:

• Can cause confusion on who to report to
• Decision making may take longer
• Can take longer to implement new things

A network organizational structure goes beyond the internal company structure and expands to the vendors, subcontractors, freelancers and offsite locations that work together to deliver the product or service the organization provides. This structure helps make sense of how all the company resources are spread out. This approach allows companies to broaden their capabilities and fill skillset gaps.

Examples of companies that use a network organizational structure include IBM and Dow Chemical.

Pros:

• Allows for organizational agility and flexibility
• Easily visualizes the web of all company teams and resources
• Fosters initiative and collaboration among employees
• Helps employees and stakeholders understand workflows better

Cons:

• Can create communication issues between internal and external teams and resources
• Can become complex to navigate internal and external relationships
• Can make it difficult for decision-making and who makes the final approval

Centralization vs. decentralization refers to defining how managers and employees give input on company goals and strategies. A centralized organizational structure gives leaders ultimate control over the decision-making process, while a decentralized organizational structure allows employees to impact business decisions.

Traditionally, in a centralized organizational structure, decisions are made at the top and then distributed down the chain of command. This type of structure gives leaders greater control over business operations, provides a clear chain of command and establishes clear role responsibilities and duties. However, since decisions would need to keep going up and down the chain of command with this structure, it can make the decision-making process and implementation longer and sometimes inefficient.

With a decentralized organizational structure, employees have more autonomy and can provide input by identifying issues and making decisions before communicating with upper management. This eliminates process delays and helps companies be more adaptable. However, this structure can create more coordination challenges.

Hierarchical vs. Circular Structures

A hierarchical structure is very traditional and the most common type of organizational structure. This type of structure is shaped like a pyramid, with one role at the top and then the chain of command being spread down below. It usually goes from board directors to C-level executives, senior management, middle management and general employees. A hierarchical structure allows businesses to streamline communication, authority and processes transparently.

On the other hand, a circular structure takes leaders off the top and puts them in the middle, with management and lower-level employees circling. This way, instead of leaders at the top of the pyramid sending information down the chain of command, it gets sent outward. This promotes more collaboration and communication among teams and employees.

A vertical organizational structure has a clear chain of command with leaders at the top, whereas a flat organizational structure has employees reporting to more than one manager and promotes more lateral career moves.

A vertical organizational structure would be similar to a hierarchical or circular structure where there is a clear hierarchy of leadership and managers versus employees, and authority and responsibility decreases the lower down the chain you go. A flat organizational structure usually has fewer management or leadership tiers, allowing employees to have more cross-departmental responsibilities and input in decisions. Matric structures are often flat organizational structures.

Regardless of the type of structure, all organizational structures have key, basic elements.

• Chain of command: Passing of instructions, reporting and decision-making within the organization
• Roles and responsibilities: Identify work specializations within the organizational structure and how they’re split amongst employees in teams and projects
• Scope of control: Regulates the number of direct reporters managed by a single supervisor and depends on the chain of command and distribution of roles and responsibilities within the organization
• Decision-making authority: Determines whether the structure is either centralized or decentralized, depending on what is most beneficial for the organization, its goals and the type of teams
• Departments and teams: All organizational structures will divide employees and management into their own departments and teams that will be reflected in the chosen structure

Intentional organizational structure provides numerous benefits for an efficient and thriving workplace. By deliberately designing roles, hierarchies and communication channels, organizations can enhance clarity, ensuring that employees understand their responsibilities and how they contribute to overall goals. This intentional structuring also promotes effective coordination and collaboration, minimizing ambiguity and confusion regarding reporting relationships and decision-making processes. Moreover, a well-thought-out organizational structure supports strategic alignment, enabling the optimal allocation of resources and adapting to evolving business environments.

There is no organizational structure that’s better than the other. There’s only the right organizational structure for your business, so it’s important to choose what’s going to be the best structure to support your current team and company objectives. When choosing the right organizational structure for your business, some things to consider are:

• The current teams and roles within your company. Look at how roles are currently organized and how responsibilities are divided. Do current structures promote clear communication, efficient productivity and employee growth?
• Company goals and objectives. It’s important to always keep in mind your company’s goals and objectives and the strategic plans in place to meet them to determine what structure will best support reaching those goals and align with the plans in place.
• Employee and management feedback. Getting feedback from employees and leadership about what structures would support communication, decision-making, productivity and collaboration is crucial for choosing a structure your staff will thrive in.

It’s important to note that the organizational structure you choose now doesn’t have to be the one you stick with forever. As your company grows, the team evolves and business objectives change, you can adapt your organizational structure to grow with the company to meet its needs in every phase of business.

Organizational structure styles, whether functional, divisional, matrix, team-based, circular or network, each come with distinct advantages and challenges. The key lies in aligning the chosen structure with company-specific factors such as size, industry, culture and strategic goals. To determine the best approach, you should assess your company’s unique needs, considering factors like company size, industry dynamics and the level of interdepartmental collaboration required. Flexibility and adaptability are crucial; an organization might evolve its structure over time to remain responsive to changing internal and external conditions.