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October 30, 2021
5 Major Types of Business Organizational Structures and How to Implement Them into the Org Chart

The lack of a proper structure within an organization can result in poor communications and inefficient workflows.

The lack of a proper structure within an organization can result in poor communications and inefficient workflows. As business owners, you need to implement the right organizational structure to guide your employees accordingly. This will help them recognize their respective roles and official relationships in the company.

You might already have an idea of what an organization chart of a company and its functions are. However, there are different types of business structures to take note of. All of which have their respective advantages and disadvantages. Hence, you must take the time to know more about each one to determine which is most compatible to your organization.

With that, here are the major types of business organizational structures and how to implement them into your org chart.

1.    Hierarchical structure

The hierarchical organizational structure adheres to a vertical chain of command that clearly identifies the leader and their respective subordinates. This organizational chart for business looks similar to a pyramid that shows the level of control from the top (e.g. CEO or managers) to bottom (e.g. low-level employees and entry-level employees.

Those who use this type of organizational structure are often military, government, and other very large companies. While this is great in defining the levels of authority and responsibility within the organizations, it can also make you prone to bureaucracy. Hence, it is not ideal for small businesses.

2.    Functional structure

Another common type is the functional organizational structure. Similar to the hierarchical structure, it also shows the level of control within the organization. However, it also groups individuals based on the specific functions they perform within the company. These are what you would know as departments. Some examples are human resource, finance and accounting, and marketing and sales.

These groups work independently from one another and are headed by their respective managers. But at the end, each manager reports to one director who is responsible for all operational areas. Using functional structure allows employees to focus on their role and specialization. However, this can also create silos within your organization and hamper interdepartmental communication.

3.    Divisional structure

Much like functional structure, divisional structure organizes your business into specific groups. Their main difference is that the latter has control over their own resources. This allows them to operate independently from the larger organization and manage their own individual teams. Meaning, each division has its own marketing team, sales team, IT teams, and even human resource.

Large companies who often plan to expand geographically use this type of organizational structure. There are also those who create market-based divisions and product-based ones. This helps them stay flexible as they branch out and promote autonomy for each group. The downside is that this can result in duplicate resources if you’re not too careful.

4.    Matrix structure

The chart for the matrix structure looks like a grid. Unlike the previous ones, it showcases both horizontal and vertical chains of command. Doing so decentralizes decision making and encourages greater flexibility among departments. Moreover, it can also create specialized and cross-functional teams for certain projects.

For example, an engineer might already belong to a specific functional group, but they can also work on a temporary project led by an entirely different project manager. This structure provides a more dynamic view of the organization. Likewise, it encourages employees to branch out in various skills and capacities beyond their original roles. Nonetheless, this can also create conflicts between department managers and project managers.

5.    Network structure

With network structure, you would disperse certain functions and roles to other organizations outside your own. You may employ freelance writers or artists, consultants, or subcontractors to accomplish specific tasks. This allows you to spread out your resources and reduce overhead costs. Moreover, it gives power to all your employees to take initiative and make decisions on their projects.

However, network organizational structure can quickly become overly complex in the long run. Hence, communication plays a critical role in this type of organizational structure. You need the right tools to encourage employees to collaborate with the rest of your network. You can check out this article where FinancesOnline lists some productivity suite software examples.

Laying out the foundations

According to The Economist, 56% of employees experience low morale and missed performances due to poor communication. You can avoid this by implementing the right organization structure for your organization. There are many types to choose from. Hence, you must first have a deeper understanding of how each one works.

The functions of organizational chart go beyond determining the hierarchy of your company. It also dictates your business’ general workflows and processes. Hence, you must choose carefully on which one to use. You can check out softwares like OrgEngine to help you map out an effective organizational chart for your business.

Joe Hunter

Passionate reader | People person | Data driven
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OrgEngine is born out of the necessity to simplify organizational management. As a new manager or CEO, you will find yourself wearing multiple hats, executing different functions at different times, leaving you overwhelmed. OrgEngine takes all the lessons and concepts in management books and implement them in a practical format for you to quickly execute.