July 26, 2018

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4 Types of Organizational Structure

Many entrepreneurs wonder what it takes for their company to be successful. Some try to focus on marketing while others put all of their efforts into making a high-quality product. However, the truth is that the way a company is structured is crucial for reaching the goals more effectively. Here are some things you should know about the organizational structure of a business and the most common types.

What you need to know

Organizational structure defines the hierarchy within a company. It specifies every job and its function. Poor structuring can lead to a lack of coordination, confusion within roles, and overall stress. Every organization should look into the various types of structures and choose one that seems most suited to their operations. However, sometimes this process can be quite demanding and a new entrepreneur might not be sure what it all means. Luckily, there are professionals, such as Dean Willcocks Advisory, that can offer you great advice when it comes to corporate structuring. Here are some of the options you have.

Functional structure

This structure is the most commonly implemented one and is most appropriate for small organizations.

A company is usually divided into smaller groups, such as marketing, finance, production, HR, IT and so on. Every department has a director or manager that supervises the workers in their respective areas and reports to an executive on a higher level, such as a CEO or a VP, who is, on the other hand, in charge of all divisions. A big advantage of this structure is that employees are grouped by their skills and roles which allows them to work more efficiently. There is also no overlap of tasks, as every department has a specific job to do.

However, some disadvantages of this approach include a lack of inter-departmental communication which can lead to poor coordination. Tunnel vision – only seeing the company through the employee’s job – can also develop.

Divisional structure

When it comes to the divisional structure, it is ideal for companies that offer multiple products, such as food, furniture and electronics, for example. It can also be great for businesses that prefer focusing on certain markets or customer types.

A company is divided into multiple functional structures. What this means is that each type of product forms its own division and consists of a production team, sales team, services team etc. This helps shorten the development cycle of products and it allows for more autonomy among the groups. Basically, each division operates as its own company.

There are some downsides to autonomy, though. It can lead to the development of systems that are incompatible with one another. Making duplicate content is also possible.

Geographical structure

This is a great way to organize a company that has several branches located in different regions or territories.

For example, a business that operates in Asia, Europe, Australia, and North America can divide the company into four main departments, and each of them can have a functional structure. This offers flexibility for the teams to operate on their own without having to get approval for every single project.

However, this type of structure also has some disadvantages. Mainly, there can be a lack of communication between divisions. Many issues concerning accounting and taxes might also arise.

Matrix structure

The matrix structure is a combination of the specialization provided by functional structuring and the focus on which the divisional structure is based on.

These teams connect functional roles with the divisional ones. Seeing as how your employees belong to two teams, they report to two managers. There are great benefits for the workers here; they can develop and broaden their skills and knowledge. This kind of reporting allows for better communication and quicker problem solving.

On the other hand, this structure can be quite confusing. Workers are sometimes not sure who to turn to and what everyone’s job is. This can often lead to conflict if roles are not clearly defined.

There you have it – the most common types of business organization. There are other types of structures that are less prevalent, such as circular and network, among others. Do your research and figure out what suits you best, and if you’re not sure what to do, do not hesitate to ask for help and call a professional.