What is the organization structure?

By Indeed Editorial Team

Updated May 27, 2022 | Published February 4, 2020

Updated May 27, 2022

Published February 4, 2020

To run more efficiently, a business may implement an organizational structure in its workplace. Depending on the size of the company and the way it operates, some structures might be more beneficial than others. Knowing how your company operates will help you perform in line with what's expected of you and help you become a better employee overall.

In this article, we define organizational structures, including their various types and the purpose and benefits of using them.

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What is an organizational structure?

An organizational structure details how certain activities are delegated toward achieving an organization's goal. It outlines an employee's role and various responsibilities within a company. The more authority employees have, the higher up they'll be on the organizational structure. In addition, the more organized a structure is, the more efficiently a company operates.

Related: Guide to Company Culture

Types of organizational structures

There are four types of organizational structures. Understanding how they work and what their benefits and drawbacks are can help you make a more informed decision as to which to implement in your workplace. The four types are:

1. Functional structure

In a functional structure, organizations are divided into specialized groups with specific roles and duties. A functional structure is also known as a bureaucratic organizational structure and is commonly found in small to medium-sized businesses. Most people in the workforce have experience working in this type of organizational structure. For example, many companies divide their organization into various departments such as finance, marketing and human resources. Each of these departments then has a manager who oversees it. This manager is then supervised by an administrator or executive who oversees multiple departments.

Advantages of this structure may include:

• Employees grouped by skill

• Greater sense of teamwork

Disadvantages of this structure may include:

• Lack of communication with other departments

• Unhealthy competition

• Management issues

2. Divisional structure

In a divisional structure, various teams work alongside each other toward a single, common goal. Each of these divisions has an executive who manages how that branch operates, controls its budgets and allocates its resources. Large companies employ this type of organizational structure. One example of the divisional structure is a car company that separates its company into SUV, electric or sedan vehicle branches. While each branch has its own function, they all work toward the same goal of making a sale. This is also known as the multi-divisional structure.

Advantages of this structure may include:

• Focus on a single good or service

• More centralized leadership

Disadvantages of this structure may include:

• Poor integration with other divisions

• Competition between divisions

• Lack of communication between divisions

• Potential tax implications

3. Flatarchy

In a flatarchy, there are little to no levels of management. A company using this structure could have only one manager in between its executive and all other employees. It is called a flatarchy because it is a hybrid of a hierarchy and a flat organization. This type of organizational structure is used more by smaller companies since they have fewer employees, though it can be used in companies of all sizes. While some companies grow out of this organizational structure, others continue to use it.

Advantages of this structure may include:

• Cost-efficient

• Fosters good communication

• Higher employee morale

• Faster decision making

Disadvantages of this structure may include:

• Potential employee conflict

• Leadership confusion

4. Matrix structure

In the matrix style of organizational structure, employees are divided into teams that report to two managers—a project or product manager along with a functional manager. In essence, a matrix structure is a combination of various organizational structures. Because these teams have two managers, a matrix structure promotes duality and the sharing of resources. Employees working for companies using the matrix structure have the potential to widen their skill set since they might be assigned to various projects requiring different levels of expertise or skills.

Advantages of this structure may include:

• Fosters open dialogue

• Flexible workplace environment

Disadvantages of this structure may include:

• Leadership confusion

• Conflicting leadership loyalties

• Potentially more costly

• Roles may not be clearly defined

• Potentially heavy employee workload

What are the benefits of organizational structures?

Though not all businesses use organizational structures, those that do can reap several benefits. Here are some benefits of implementing an organizational structure in your company:

Faster decision-making

When your company's various teams communicate more effectively, your company's overall communication will be positively impacted as well. This will then lead to quicker decision-making. In other words, the flow of information with an organizational structure can be used to promote faster decision-making.

Multiple business locations

If you're a business owner, having an organizational structure helps to ensure all of your locations are operating similarly and are abiding by the same procedures. Because owners can't be at every location, an organized structure can provide you with some peace of mind. This is particularly the case when your company begins to grow in size.

Improved operating efficiency

Because organizational structures divide companies into various teams or branches, they're helping to ensure that all tasks and responsibilities specific to those divisions are met more easily. When an employee knows what they should be working on, they're able to operate quickly and more efficiently. In essence, an organized structure creates an efficient and streamlined system that helps improve company operations overall.

Greater employee performance

When an employee is delegated certain tasks and responsibilities, they're able to perform well at their job. An organized structure provides employees with the guidance they need to perform at their best every day. An improvement in employee performance can also lead to greater employee morale and confidence.

Eliminates duplication of work

When employees are divided into teams according to their skills and expertise, the risk of overlapping job duties is eliminated. For example, if a project is assigned to one team, the other teams know it's not their responsibility to take it on because they have their own tasks outlined as well.

Reduced employee conflict

Using organizational structures can potentially eliminate conflict between employees. While several factors can come into play in this regard, once an employee knows their duties, the more focused they'll be on their work. For the most part, this is a great way to avoid any rising conflict between coworkers.

Better communication

While this will vary from company to company and depend on the specific organizational structure in place, an organizational hierarchy has the potential to foster healthy communication between different divisions and teams. Once duties are delegated to various teams and individuals, others in the workplace will know who to turn to for certain matters. For example, if you're on a team with one manager, you'll know who to report to should issues arise. Similarly, if someone from marketing has a question about the design of the project, they know to contact the art department.

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