By Mark Pierce, Esq.
Is your company’s current organizational structure the best option for reaching its goals? Company hierarchy is a critical component to operating a business efficiently, and modeling a successful organizational structure allows a company to lay out the relationships, roles, and responsibilities across the various levels of management and for all of its employees. There is no one-size-fits-all approach to running a company, and that is reflected in this organizational structure chart, created by the team at Cloud Peak Law Group, that explores the ten different ways a company can be structured internally. Each of the ten organizational structures types we’ve illustrated in this business guide has its own set of advantages and disadvantages to take into consideration when you’re deciding on the best way to structure your business. Factors like the size of the company, the industry it’s in, if employees have specialized skills, or if there are multiple office locations are all important things to consider when it comes to choosing the right organizational structure. Read on to learn more about the ten different ways that a business organization can be structured for success.Click the image to expand
An organizational structure outlines the chain of command and the flow of information throughout a company. It is used to define the different levels of management and the decision-making authority of each employee within the company. There are ten types of organizational structures that are commonly used in business, each of which has a specific leadership hierarchy that companies can emulate. Each of the organizational structure types comes with its own advantages as well as potential disadvantages. You’ll find that some of the business structures encourage communication across multiple departments, while others may hinder it. Certain business models allow departments and employees to be flexible as the company works toward a common goal, while others are more rigid and department-focused.
There are several organizational structure types that are more commonly found to be used in businesses. One common type of organizational structure is the hierarchical structure. In the hierarchical organizational structure, the power to make decisions flows from the top to the bottom through multiple levels of management. It is a common organizational hierarchy found in business, as its format is well-suited for companies of any size and in any industry.
The functional organizational structure is another model that is often used to organize a company’s leadership flow. Its centralized structure is similar to that of the hierarchical structure, although each department is more self-sufficient, with a manager who has a greater authority to make decisions within their department. A functional structure works well for companies that have several large departments. With so many employees having to report to a department manager, this business organizational structure allows each department to be more self-sufficient and innovative.
The main difference between a centralized and decentralized organizational structure is where the authority to make decisions lies. A centralized organizational structure relies heavily on top-down leadership, with one person or an executive team in the organization responsible for making the major decisions. One example where the centralized company structure is commonly found is in small businesses, where one person makes the decisions, which are then easier to implement with a smaller workforce. In a decentralized organizational structure, the authority to make decisions is spread among several managers, departments, and even lower-level employees. An example of this type of organizational structure is a franchise chain where each franchise owner is able to run their store independently and make their own decisions about things like staffing, compensation, and hours of operation.
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A hierarchical structure is the most common type of organizational structure. It is often visualized as a pyramid with multiple levels of leadership. The chain of command starts with the top position and flows downward through multiple levels of management. Each employee, aside from the top level, will have a supervisor.
A functional structure is divided into multiple departments that each have specific responsibilities or skills, with the head of each department reporting directly to the top position.
The matrix organizational structure resembles a grid that consists of a traditional hierarchy where employees with shared skills report to the same department, but they also report to a project that manages employees across different departments for special projects.
The horizontal (or flat) structure eliminates middle management levels and instead has just one level that separates the employees from the top position. The employees have more responsibility and equal power without the usual hierarchical structure. This structure is often found in small startup businesses before they become big enough to build out their departments.
With a divisional structure, organizations are broken down into divisions that each has its own leadership, departments, and resources. Each division essentially operates like its own company within the larger organization; they are often separated by market, products, or territories. This structure works best for larger companies, especially those in manufacturing industries.
A network structure does not have a hierarchy; instead, a central organization works with various external organizations in different locations. It organizes the relationships between the departments in the core organization with those of other locations and their teams of freelancers and other third-party companies that tasks are outsourced to. This structure is typically found in large multi-city or international companies.
A team-based structure groups employees into skills-based teams to work on specific tasks that share a common goal. This flexible structure allows employees to collaborate with different teams on various projects as needed.
A process-based structure is organized based on the flow of the processes and moves from left to right instead of top to bottom. With this structure, each process cannot start until the one before it is completed. Each department is a step in the process and has its own supervisor, while the top position in the company oversees all of the different processes.
A line structure is one of the simplest organizational structures, with the authority flowing in a line from top to bottom, and does not include any specialized or supportive services. The top position oversees the different departments, and each department head supervises the employees within it. Each department works independently toward a common goal of the organization.
A circular structure has a hierarchy, but it differs in its ideology. The leaders are seen as being at the center of the circle sending orders outward rather than down the chain of command. The different departments are seen as being part of the same whole instead of separate, which allows ideas to be shared between different levels of the organization.