Whether you own a large-scale business or a small scale one, running it is challenging. However, there are several organizational, structural and managerial aspects in which both these business levels vary greatly.
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Different Types of Organizational Structures with Examples
Organizational structure is the backbone of any enterprise. If there is a lack of organizational structure or a wrong structure is adopted, this will lead to ultimate chaos and confusion.
That’s exactly why one must know about the different types of organizational structures and choose the most suitable ones accordingly.
Below mentioned are the 7 common types of organizational structures that boost productivity at any organization and create a seamless work environment:
1. Divisional structure
A divisional structure is one where the company is divided among multiple business units. Each of these units has different departments to control, and they serve as independent units. The best part is that each of these units will have its own teams and strategies for IT, sales, marketing, and so on.
If yours is a large company with multiple products or services to offer, then the divisional structure works perfectly well. Also, this structure goes well with companies that work on a merger basis or serve across different industries and geographical regions.
These small units work as independent entities. However, the leaders of each unit are required to operate as per a centralized framework. Basically, the top management dictates the company culture, and the small divisions are free to make operational decisions.
The divisional organizational structure is further divided into 4 categories, namely, industry-based, market-based, territory based and product-based divisional organizational structure.
Examples: The best examples of companies that go for divisional structures would be Disney and McDonald’s Corporation. They divide their organization across different locations and come up with business strategies for their target audience as per custom demands.
2. Functional structure
A functional organizational structure is one of the most prevalent types across the globe. It is best for enterprises that need a high degree of specialization. Under this structure, the employees are divided into different departments based on their work specialization. The characteristic trait of a functional structure is the top-down or centralized decision-making process. Department managers are required to report to upper management. The leaders of each department stay in touch and communicate on a regular basis. Lower level employees don’t have much say in day to day operations and are simply required to follow orders.
In order to operate a functional organizational structure at its best capacity, it is important to train leaders so that they promote collaboration across different departments.
Example: Apple Inc. employs a functional organizational structure in order to maintain an innovative edge. It does so by leveraging specialized departments. Under the leadership of Tim Cook, all other departments, like marketing, sales, product design, and supply chain, operate. Similarly, Procter and Gamble (P&G) also leverages the functional organizational structure in order to manage its wide variety of portfolio brands across the world.
3. Team-based structure
As the name suggests, this kind of organizational structure focuses on dividing members into small teams. Each team is assigned the responsibility of delivering one service or product. The teams are allowed to make decisions and solve problems without involving any third parties. The members of each team have complete control over the projects. Also, they are responsible for managing the entire workload within the team. They have minimal formalization and enjoy a great degree of flexibility.
Global manufacturers are highly likely to opt for team-based structural organizations.
Example: Google has a highly dynamic team-based organizational structure. This enables Google to instill a sense of adaptability and innovation across their organization. It is more like a cross-functional team where multiple departments work together on specific projects. Spotify, too, uses a team-based structure and has different teams, such as Tribes, Squads, Guides, and Chapters.
4. Network structure
Network structure is not just limited to your company structure. Rather, it is when two or more different organizations come together to create and deliver a single product or service. Such organizational structures require third-party vendors or independent contractors to complete the projects.
Such organizations employ full-time experts as well as work with freelance specialists. In-house team members get to focus on their areas of expertise. With network structure, companies can easily adapt to dynamic market shifts and follow the trends.
Also, when you work with individuals outside your company culture, it leads to a lower degree of formalization and enhanced agility.
Example: Nike is a great example of a network organizational structure where it outsources multiple activities such as manufacturing, external supplies and so on. Meanwhile, Nike focuses on significant core activities that are of value, such as brand management, design, marketing, etc.
Cisco Systems, too, uses a network organizational structure. It enters into strategic partnerships and collaborations with technology-oriented startups, companies and research organizations. It collaborates with external partners to co-develop solutions and technologies.
5. Matrix structure
A matrix organizational structure is one in which members of a team are required to report to different managers simultaneously. The key idea behind this structure is that multiple supervisors increase the work speed as well as enable company-wide interaction.
However, adopting a matrix organizational structure can be a bit tricky. You should be careful enough and need to find a way out to avoid managerial conflicts and authority confusion.
Companies with a matrix organizational structure allow enough flexibility to attract employees into more significant projects at will. Also, it helps with smooth and fast project delivery.
Examples: General Electric is a global industrial conglomerate and has been leveraging matrix organizational structures for so many years now. Divisions like healthcare, aviation, energy and aviation are thriving because of matrix structure only. For example, if you are an engineer in GE working in the healthcare division, you may have to report to the healthcare project manager for specific product development and to the technical manager as well for maintaining engineering standards. With this structure, GE gets to leverage expertise across multiple divisions, all the while maintaining adaptability and flexibility.
6. Flat organization structure
A flat organizational structure is also known as a horizontal structure or flatarchy. This structure is incredibly popular among small businesses and startups. This structure is very basic and simple in nature. Also, most companies and businesses generally start with a flat structure and then transition to other organizational structures as per the operational demands.
With a flat organizational structure, it is possible to encourage open and free communication. Also, there’s a clear path for seeking and allowing approvals. Any kind of edits and implementations also take place faster than any other form of organizational structure.
Example: Valve Corporation is a popular video game development company which is known for its flat hierarchy. There are no formal managers and bosses. Employees get to work freely on projects of their choice. This further promotes innovation and creativity. Decision-making happens in a decentralized way, which allows individuals to choose projects based on their passion and expertise.
7. Hierarchical structure
Another organizational structure that is quite common across industries is the hierarchical structure. You can compare the structure to a pyramid where there will be a proper, well-laid-out, and clear chain of command with C-suite executives at the top to senior management and then further down to lower-level employees.
A hierarchical structure is highly beneficial in terms of streamlined business processes, reducing conflicts, and establishing clear career paths. However, the structure slows down significant processes such as approvals and decision-making. This may not be very good for the morale of the low-level employees. Also, if the top of the pyramid, i.e., the CEO, is not an efficient leader, that can affect the overall function of the organization because of the hierarchical structure.
Example: Toyota has been operating as a hierarchical structure. This helps in enhancing its manufacturing efficacy. The top leadership comprises the President and Board of Directors. They are further followed by executive vice presidents and senior managing officers. Below them, there are general managers and department heads. This hierarchical structure enables Toyota to manage its global supply chains seamlessly and maintain quality control by leveraging the highly reputed TPS or Toyota Production System.
Apart from these 7 major organizational structures, some companies also go for two non-conventional structures. These are:
8. Organic structure
This is quite the opposite of vertical structures and, in fact, one of the most intricate ones. If done right, manifolds increase productivity. The best part about this structure is that it facilitates clear communication among all the members. Also, the structure is known for its ability to foster a positive work culture as employees get to work freely without any “superior” breathing down their necks.
Zappos, the e-commerce giant, maintains an organic organizational structure.
9. Circular structure
This structure is quite similar to a hierarchical structure in terms of functionality. However, the decision-making authority in the case of circular structure flows out from the center of the organization. It is highly beneficial if you want to enhance collaboration and communication in your enterprise.
However, for new employees, the circular structure may seem a little confusing initially, especially because there is no clarity around the chain of command.
Gore-Tex is a prime example of a circular organizational structure.
Managerial Structure
Large organizations are more bureaucratic in nature collaborated with a more hierarchical structure. This means large companies have more layers of management than that in small organizations because of more number of personnel. This makes management easier in large companies that lead to uninterrupted workflow and growth.
On the contrary, employees in small organizations can directly interact with and participate in decision making as the top managers are only a few feet away.
Employee Responsibility
In large companies, employees have individual operational roles. Employees are young and dynamic and make a more diverse workforce. Also, it is believed that large organizations tend to draw employees looking for job security. On the other hand, smaller companies attract those who wish to work across varying locations or areas or are looking for change, growth, or risk-taking.
Also Read: Types of Motivational Theories of Management
Politics
Large organizations are often affected by politics due to the multiple managerial layers. Politics, on the other hand, tends to play a lesser role within the smaller ones. Here, the owners of the organization have direct communication with each employee and enjoy long-standing relationships with them.
Decision Making
Generally, strategic decision-making is more centralized in small organizations due to the relatively less number of managers. Although it is uncommon for managers to make all the decisions virtually in the first one to five years of a business, it becomes impossible for a single person or a managerial team to make every decision once a company reaches a certain size.
Salary
There is a strong argument that larger organizations tend to offer higher salaries to their employees as compared to those in smaller ones. Also, this is often followed by perks such as gym memberships, private healthcare, etc. to make their benefits more substantive.
Also Read: Do large companies pay more?
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