Your company's structure impacts your company's leadership hierarchy, the flow of information, and how well employees communicate internally. A robust corporate structure enhances the efficiency of employees, streamlines a chain of command, and increases transparency in the workplace.

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But not every company functions best with the typical hierarchal or flat structure. There are different structures that your organisation can adopt depending on its age, size, and strategy.

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Planning the perfect organisational structure ensures enough HRs with appropriate skills to accomplish the businesses' goals, mission, and vision.

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In this article, we discuss the seven organisational structure types, their importance, and how you identify the best structure for your business.

What is an Organisational Structure?Organic vs. Mechanistic Models What Types of Organisational Structures Exist?Why is Having an Organisational Structure Important?How to Identify the Best Organisation Structure for Your Company?The Bottom Line

What is an Organisational Structure?

Organisational structures are visual diagrams of a set of rules and relationships that describes the following:

What employees do and who they report to
How the company operates to meet its goals
How the business makes internal decisions

In addition, an organisational structure defines corporate hierarchy, including the roles of an employee and where each part fits within the business. Most corporate systems use functions, products, markets, geographies, and processes s their guide.

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Organic vs. Mechanistic Models

Organisational structures fall into two categories, either 'mechanistic' or 'organic.' Let's discuss these structural models, their benefits, and drawbacks:

Organic Structure

An organic organisational structure is less formal with an ad hoc approach to meeting business needs. They are also known as flat structures and are famous for their decentralized and effective control.

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Multiple teams report to one person in an organic structure, and teams take on projects depending on their importance. Moreover, the chain of command in organic systems can be long or short.

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An organic structure may resemble boundaryless organisations that allow employees to cultivate ideas and be creative. Such systems are perfect for dynamic environments where the business needs better flexibility and adaptability.

Mechanistic Structure

Mechanistic structures are formal organisational structures with narrow spans of control, high specialisation, and more excellent centralisation. These structures are rigid and determine specific boundaries regarding the roles and duties of each department.

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A mech or bureaucratic structure holds the staff accountable for their work and decreases the creativity and agility of an organisation.

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The best part of leveraging such structures is that the chain of command is always transparent. Such models are ideal for stable and simple environments.

What Types of Organisational Structures Exist?

Let's go through the seven different types of organisational structures:

Hierarchical Organisational Structure

A hierarchical or line organisational structure is one of the most common types.

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Its chain of command goes like this: paper flows from the board of directors to the CEO or manager to entry-level and low-level employees.

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Each employee has a supervisor, and thus, a hierarchal structure is a centralised organisational structure.

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Let's discuss the pros and cons of a hierarchal organisational structure:

Pros

• Defines levels of responsibility and authority

• Details corporate ladder and promotional system to encourage high-quality work

• Gives each employee a specialty

• Facilitates communication between employees within the same department

Cons

• Slows down innovation or changes due to bureaucracy

• It may cause low-level employees to feel like they can't express their ideas

Functional Organisational Structure

A functional organisation structure is another centralised structure similar to a hierarchical corporate structure, starting with high-responsibility positions and low-level employees.

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The primary difference between functional and hierarchical structures is that the department heads take the role of a staff director.

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Hence, the company organises employees according to their skillset, and each CEO manages a department independently. Here are the advantages and disadvantages of a functional structure:

Pros

• Enables workers to focus on their specific role

• Boosts the self-determination of different teams

• Allows easy scalability

Cons

• Decreases interdepartmental communication

• Inefficient for organisations with varying products and target markets

Divisional Organisational Structure

In a divisional organisational structure, each division within your company controls its resources. Hence, each division operates like a company with its separate marketing team, IT team, sales team, etc.

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Divisional organisational structures are ideal for multi-national businesses with many large departments, markets, or territories.

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The structure empowers various divisions to make intelligent business decisions and report to its chief commanding executive rather than a few executives.

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Let's discuss the pros and drawbacks of a divisional organisational structure:

Pros

• Different departments enjoy the flexibility to operate separately

• It is adaptable to cater to unique customer needs

• Individual sectors enjoy more autonomy and room for innovation

Cons

• There is a higher risk of accidental duplication of resources

• It hampers poor communication and low interaction among different departments

Circular Organisational Structure

Contrary to popular belief, a circular organisation structure also relies on a hierarchal corporate system.

In a circular org structure, high-level employees occupy the inner rings, whereas low-level staffs inhabit the outer ones. Moreover, the directors, leaders, or executives are present at the organization's center.

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Here are the advantages and disadvantages of a circular org structure:

Pros

• It encourages the flow of information

• It keeps employees aligned with the processes and goals of the company

Cons

• It can be tricky for new employees to figure out who to report to

• Employees may find it challenging to determine how they fit within the organisation

Flat Organisational Structure

A flat or horizontal organisational structure is perfect for businesses with multiple levels between low-level employees and upper management.

Most startups and small businesses leverage a flat org structure to encourage involvement from all employees and less supervision.

The top advantages and disadvantages of a horizontal organisational structure include:

Pros

• Encourages open communication

• Boosts coordination and implementation of new ideas

Cons

• Creates confusion since employees do not know who to report to

• It can be challenging to manage once your company upscales

Matrix Organizational Structure

Matrix organisational structures resemble a grid with cross-functional teams collaborating for special projects.

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For instance, an architect from an architecture department (led by an architectural director) may work on a temporary project led by a project manager.

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A matrix organisation chart is a fluid form of the traditional hierarchal structure and has the following pros and cons:

Pros

• Supervisors can choose the best employees for a project

• Employees can learn and foster skills outside of their traditional roles

Cons

• Creates conflicts of interest between project organisation needs and department organisation needs

Network Organisational Structure

Network organisational structures are ideal for large, multi-city, and multi-national companies aiming to organise relationships among different locations.

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A corporate network structure facilitates communication between workers from different locations, third-party companies, etc.

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Let's discuss the pros and cons of a network organisational structure:

Pros

• Improves the understanding of the distribution of functional roles among onsite, offsite, and third-party workers

• Boosts flexibility between different departments and location

• Facilitates workplace communication and employee collaboration

Cons

• It is a complex corporate structure

• It's vague as to which department/office has to make final decisions

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Why is Having an Organisational Structure Important?

Here are the beneficial outcomes of implementing an organisational structure:

It helps define the authority, responsibility, and relationship between different facilities
Lays down the channels and patterns of communication
Ensures a better understanding of the objectives and policies of your corporate
Encourages coordination of activities to facilitate the realisation of company goals
Helps grow and diversify organisational activities
Improves the productivity, cooperation, and participation of workers in organisational projects and activities
Stimulates creative thinking and initiation
Eases the implementation of policies and achievement of goals

Now let's discuss a few of these benefits in detail:

Facilitates Better Workplace Communication

Optimally designed organisational structures facilitate the easy flow of information. An org system with clear lines of communication ensures overall success.

Boosts Growth and Expansion

Companies that experience rapid growth and success use their resources strategically.

A well-designed company organisational chart ensures that a business hires the perfect candidate with the right skills in the ideal positions. It may also help a corporate pinpoint weak spots in its management team.

In addition, the ideal organisational structure evolves with the growth and expansion of a company.

Eliminates Overlapping and Duplicate of Work

Unclear work distribution and disorganised work are two factors that contribute to duplication within a company.

An optimally designed organisational structure includes clearly defined duties and well-assigned roles. Hence, it helps eliminate the overlap and duplication of work.

Decreases Runarounds

Runarounds occur in a company where employees cannot identify who is responsible for what. Hence, workers do not meet with the right people in the first instance.

However, a well-organised company with the perfect structure establishes the responsibilities of each employee. Thus, an organisational structure reduces runarounds.

Facilitates the Promotion of Personnel

A high-quality organisation chart determines the positions of workers relative to one another. Hence, it is easier to pinpoint when and how an employee reaches a new level in the corporate hierarchy.

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Moreover, a clear description of qualifications and duties allows managers to establish promotional stages.

Helps in Growth and Success

Ensuring success starts by using your human resources and talent appropriately. A growing company should upscale its organisational structure to ensure they have the correct person in the proper position.

Efficient Task Completion

An optimum quality organisational structure encourages the quick and efficient completion of projects.

Project managers can quickly identify the available human resources if the responsibilities and capabilities of each team member and department are clear.

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For example, if your corporate plans to launch a new product, you'll have to conduct market research. The project manager can look at the company structure to pinpoint who can provide the study and whose permission is required.

Promotes Effective Planning

A well-defined structure ensures goals and resources are easily identifiable. As a result, strategic planning becomes realistic and focused.

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Moreover, such planning encourages managers to make changes in the right direction, such as expanding facilities, growth of activities, etc.

Improves Operational Efficiency

Organisational structures help break down the company into various branches, thus, ensuring employees meet all tasks and responsibilities efficiently.

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An organisational structure creates an efficient system wherein each employee knows which task they should be completing. Consequently, it allows employees to operate more efficiently and boosts the overall company operations.

Creates a Sense of Independence and Pride Among Members of the Organisation

Employees can enjoy certain freedom within the domain of their authority and responsibility.

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Since every member knows the extent of their authority, it develops a sense of independence. Consequently, employees experience a boost in morale which increases their productivity.

Why Do I Need a Business Organisational Chart?

Launching a startup comes with a high degree of uncertainty. It is essential to give your business a framework to grow and expand over time.

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Structure gives employees better clarity about company goals, encourages decision-making, helps manage expectations, and ensures consistency.

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Companies' organisational charts also help assign responsibilities, streamline workflow, and ensure employees complete tasks quickly.

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Thus, small business organisational charts help employees focus on priority tasks, boost productivity, and increase workplace efficiency.

How to Identify the Best Organisation Structure for Your Company?

Reaping the benefits of organisational structure roots from designing the perfect system. Here's a step-by-step guide to identifying and creating the best organisational structure for your corporate:

1. Reviewing Different Organisational Structure Types

Designing the perfect organisational structure starts by reviewing and familiarising yourself with the different kinds, including:

Hierarchical Structure - a commonly used centralised structure, hierarchal formats leverage a top-to-bottom strategy. It defines the company's hierarchy and helps visualize the flow of authority from the board of directors down to low-level employees.
Functional Structure - similar to a hierarchical structure except that it includes department heads who report to the CEO. Hence, department heads can manage their departments independently.
Divisional Structure - multi-national and multi-city organizations use a divisional structure to manage multiple product lines. Thus, each product line or market has its set of departments that can enjoy better autonomy.
Flat Structure - all employees enjoy equal power and can exercise greater creativity in a flat structure. It is perfect for startups and small businesses.
Matrix Structure- these structures resemble hierarchical ones but enable employees to jump from one department to another depending on the need of a project.
Team Structure - a team structure groups employees together to complete specific department goals that contribute to the organisation's objective.
Network Structure - companies that leverage a network structure often outsource major processes to vendors and subcontractors.

2. Determining Your Company's Strategy

To determine your company's long-term strategic plans, you need to consider the following:

Your company's objectives and values
Your business' mission and vision statements

Your mission statements should describe your purpose, motivation, core functions, and goals briefly. On the other hand, your vision statement expresses your company's long-term goals. Take some time to determine which organisational structure complements your strategic plans.

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For instance, a startup is more likely to choose a flat structure, whereas a multi-national company with dozens of branches might prefer a divisional or hierarchal one.

3. Considering the Size and Age of Your Company

Most experts agree that the size and age of a company impact organisational structures.

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For instance, large and multi-national businesses tend to have more vertical levels, greater work specialisation, rules, regulations, etc. Hence, they prefer a mechanistic model.

4. Identifying Your Company's Environment

Choosing the ideal organisational structure requires determining the factors affecting the corporate design.

Thus, you must consider the impact of customers, competitors, suppliers, vendors, legal changes, and cultural and economic conditions.

5. Consider the Technology

Technology refers to the combination of tools, know-how, and techniques that a company leverages to transfer its inputs and outputs.

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Designing the perfect organisational structure significantly depends on whether the technology is simple or complex and the degree of routine-ness.

6. Assessing Different Factors

Next, you have to review the information you've collected based on the following factors:

Company's strategy
Environment
Size
Age
Technology

Once you analyze your results, you can determine which organisational structure best benefits your company. You can choose between a mechanical and centralised or an organic and decentralised method.

After pinpointing your organisational model, you can quickly narrow down organisational structures to find the best fit for your company.

7. Creating Organisational Charts

Start creating a visual chart after narrowing your options to two to three organisation structures. Here's what you should do:

Create a comprehensive organisational chart depending on the structures you're considering
Start filling each graph with the names of the employees
Determine which workers report to who, their responsibility, and duties
Identify whether you should get rid of or increase positions to enhance the functionality of your business

After completing your visual charts, you can decide which structure best helps you meet your long-term goals.

The Bottom Line

Companies have to think fast in today's fast-moving and competitive global market. They have to innovate, adapt products and services to changing customer demand, and stay close to local buyers.

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For this reason, most companies are moving away from functional structures to more flexible ones.

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Businesses today leverage network or matrix organisational structures to enjoy a high degree of empowerment, effective workplace communication, and rapid information flow.

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It encourages teams to set their goals that contribute to larger organisation objectives, work efficiently, and experience a boost in morale.

KEY TAKEAWAYS

Your company's structure impacts your company's leadership hierarchy, the flow of information, and how well employees communicate internally.

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