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7 Types of Organizational Structures (With Examples)

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In enterprise management, organizational structure is the compass that points to effective decision-making, well-defined roles, and achievement of strategic objectives.

An organizational structure defines the hierarchy, lines of authority, communication channels, and official policy-relation mechanisms. It provides a blueprint for how different aspects of a company work together to achieve the ultimate company goal.

We look into the seven types of organizational structures and their real-world application as your guidebook to architect the next phase of your business.

Functional Organizational Structure

Functional organizational structures are one of the simplest and most common types of organizational structures. Here, the organization is grouped according to a specialized or similar set of tasks, like marketing, finance, or engineering. Each department has a clear set of roles and responsibilities and is managed by a functional head, which leads to efficiency within distinct functions.

Example: Apple Inc.

Apple Inc. famously follows a functional structure, with design, marketing, and engineering standing at the core of its division. With this organizational leadership, Apple has been able to increase specialization and improve the efficiency of each department. And we all know the results as one of the most valuable companies out there. That creates innovative products like the iPhone and Macbook.

Divisional Organizational Structure

In a divisional structure, a company’s divisions have a certain autonomy and are organized according to what the company sells or where it operates, with each division operating independently. This type of structure can lead to duplication of resources but can also be more responsive to changes in industry and customer needs.

Example: Procter & Gamble

Procter & Gamble’s structure organizes operations based on the product, with each product having a separate division. This allows them to focus on different customer groups and product lines, encouraging pride, and ownership over the results, initiatives, and activities related to each unit.

Matrix Organizational Structure

The matrix organizational structure is a hybrid-type where individuals report to more than one supervisor or leader, thereby breaking away from the traditional ‘top-down’ flow of authority. It usually employs an authoritative leadership style. It is common in complex projects and teams where a high level of coordination is required.

Example: General Electric

General Electric implemented a matrix structure, particularly in its GE Power and GE Renewable Energy businesses. Employees have dual reporting relationships – for functional expertise and for project work – which helps in sharing resources more effectively and keeping a project on course even as changes of scope are made.

Flat Organizational Structure

A flat organizational structure has few or no levels of middle management between staff and executives. The organizational chart is simple. This approach is known for promoting efficiency, quick communication, and decisions, as well as fostering a sense of ownership among employees. A democratic style of leadership is common in these companies.

Example: Valve Corporation

Valve Corporation, the video game developer and digital distribution company, is often cited as one of the purest forms of a flat organizational structure. There are minimal job titles and employees are encouraged to work on projects of their own choosing, leading to a dynamic, self-organizing system.

Hierarchical Organizational Structure

A hierarchical organizational structure, also referred to as a bureaucratic organizational structure, is a top-down pyramidal chain of command. This type is suitable for companies operating in stable environments and is characterized by a clear line of authority, and usually, standard operating procedures.

Example: Walmart

Walmart, one of the world’s largest retail chains, operates within a strong hierarchical structure. Each employee has a clear place in the chain of command, and roles are highly specialized, a method that has proven beneficial in running the complexities of a global chain effectively.

Team-Based Organizational Structure

Team-Based Organizational Structure
Lexchart

The team-based organizational structure emphasizes the formation of work groups around a project or emergent need, cutting across traditional departmental boundaries. It is known for boosting employee morale and promoting an entrepreneurial spirit.

Example: Zappos

Online shoe and clothing retailer Zappos is known for its team-based organizational structure. Employees are encouraged to form teams that focus on delivering excellent customer service without being restricted to the usual confines of departmental silos, promoting a more agile and customer-focused approach.

Network Organizational Structure

Network organizational structures are a radical departure from traditional models, focusing on the relationships among individuals and entities. They can be more flexible and responsive than top-down models and are common in industries such as consulting, where the value lies in the expertise of individual professionals.

Example: Uber

Uber’s use of a network structure is evident through the complex web of relationships between drivers, riders, and the technological platform that connects them. Instead of direct employment, Uber operates with independent contractors using technology as the backbone of a large network.

Conclusion

Selecting the best organizational structure is a critical exercise as it lays the foundation for your company’s culture, efficiency, and profitability. Just as one size doesn’t fit all in fashion, the same is true in organization structures. Each type bears its own set of advantages and challenges, which must be weighed in line with company size, industry, and objectives.

Adopting the right structure is the first step, but maintaining adaptability is an ongoing challenge. The organizational structure that works for you today may need to evolve tomorrow. Therefore, continuous evaluation and a willingness to adapt are key in this dynamic era of business management.

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