An organizational structure creates a framework for how a company operates, including the division of responsibilities and authority.
Together with culture, strong org structures can keep companies aligned with organizational goals and objectives, moving forward as one.
Here are the most common alternative org structures in use:
You may ask, what is the best organizational structure?
The answer depends on the type of organization you want to run. Let’s break each one of these down.
A top-down organizational structure is how most companies have operated for centuries. At the top of the organization is the owner, founder, CEO, Board of Directors, or business leader.
Underneath the boss are arranged various executives, 'middle' managers, supervisors and employees, shown in various layers (or levels that correspond to seniority). The higher up the structure, the more senior you are, with more responsibility and (usually) higher remuneration.
The person at the top has the ultimate authority and sets the agenda and strategy. The managers create the plan and the employees execute the plan.
Top-down orgs have functioned in an orderly and easy-to-understand hierarchy for hundreds of years. Everyone has a clear line of reporting and understanding of the chain of command.
Key features of a top-down org structure include:
You may also hear a top-down org structure referred to as a 'hierarchal' org structure, or as an 'autocratic' leadership structure with 'Theory X' management. Some have argued that this style of structure is outdated, in a world that is moving so fast.
The view may be good from the top, but what about the rest of your company? | Photo by mirsad mujanovic / Licensed under Pexels License
Benefits of a top-down org structure include:
Disadvantages of a top-down org structure include:
A bottom-up organizational structure works much differently. Everyone in the organization has a voice in company goals. Tasks and responsibilities change over time.
Lower-level employees within an organization are granted greater authority to solve problems, set directions, and take on tasks. The goal is to allow for greater input from the employees closest to the customers or problems and create a more collaborative environment.
Instead of strategy, ideas, and assignments being handed down from the top, ideas and insights are formed at the bottom and flow upwards in the bottom-up org structure.
In his seminal management book, Good to Great (2001), Jim Collins found that "getting the right people on the bus" was only half the job, but "working out where to drive the bus, together" was an important element in successful organizations.
Key features of a bottom-up org structure include:
Many startups and smaller organizations use this approach to keep everyone in the organization engaged and vested in success.
Benefits of a bottom-up org structure include:
Disadvantages of a bottom-up org structure include:
A functional org structure is similar to a hierarchical org structure, but focuses on job functions rather than titles.
Employees are classified by their skills and organized by the corresponding functions they play within the organization for process efficiency.
Departments are managed independently, although managers report to upper management.
Key features of a functional org structure include:
Benefits of a functional org structure include:
Disadvantages of a functional org structure include:
In a divisional org structure, employees are organized into divisions that have control over their own resources. In large companies, these divisions often operate like their own companies within a larger organization. In mid-size and smaller companies, employees may be organized by departments.
There are several different types of divisional organizational structures, including:
Dividing the organization into divisions can make sense | Photo © piranka from Getty Images via Canva.com
Benefits of a divisional org structure include:
Disadvantages of a divisional org structure include:
A tall organizational structure is typically used in complex or layered organizations. As companies grow, they start to add in additional management levels and can have complicated chains of command.
While employing the same principles as the top-down structures, it further delegates responsibility and authority to managers. Most often used in large companies, responsibilities may be divided into divisions or units which managers oversee and set strategy in their respective areas. Subordinate managers create the execution strategy and lower-level employees are assigned tasks.
In a tall org structure, lower-level employees make significantly fewer independent decisions. They may not have the experience or knowledge to make informed decisions and, therefore, need greater direction and supervision.
Key features of a tall org structure include:
Benefits of a tall org structure include:
Disadvantages of a tall org structure include:
A flat organizational structure has very few, if any, management layers between the leadership and employees.
Small companies and startups often launch with this kind of flat hierarchy. Every employee will take part in significant decisions and have greater responsibility for success.
A flat org structure can also significantly enhance transparency due to limiting bureaucracy and management layers. It can help streamline and speed up decision-making. A flat org structure, however, can be difficult to maintain as companies grow and evolve.
In small companies, nearly every employee is involved in different aspects of the business. As organizations grow, they need people to focus more energy on specific areas, such as sales, marketing, and operations.
As things become more complex, management layers are typically added which eliminates the flat org structure.
Key features of a flat org structure include:
A flattened organization can work well when small, but as it grows layers may need to be added | Photo by Benhur Emmanuel / Licensed under Pexels License
Benefits of a flat org structure include:
Disadvantages of a flat org structure include:
In a matrix organizational structure, resources and employees are spread across multiple functional areas. For example, employees may work in one department but have responsibilities in another. There may be multiple lines of reporting, which may change depending on job duties.
In other words, rather than people reporting to one manager, they may report to others as part of their routine job duties or for different projects.
Benefits of a matrix org structure include:
Disadvantages of a matrix org structure include:
For more on matrix structures, please read this article.
Whatever your chosen structure - or even if you want to experiment and strength test a few alternatives - you can create intelligent org designs with Functionly to help you navigate the future.
Easily map your organizational structure and workflows for greater alignment and accountability. Use our drag and drop tools to easily create and modify org charts and run scenarios to see the impact of changes on your structure.
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Photo Credits
Title header photo: Photo by Clem Onojeghuo / Licensed under Unsplash / Cropped from original