Every business, whether large or small, should have a well-defined organizational structure to ensure efficient operation. Without a clear and documented structure, confusion and inefficiencies can arise due to blurred reporting lines and poor communication across teams and business units.
This article covers six typical organizational structures.
A matrix structure is best suited to those businesses with functional groups which are designated to working on wider organizational projects. Functional groups (including engineers, designers or other specialists) may be required to work on projects across multiple products or customer types. While a matrix structure provides flexibility and a balanced approach to decision making, it can also lead to confusion due to conflicting responsibilities and blurred reporting lines.
Of the six organizational types discussed in this article.
functional structures are the most common form. The functional structure segments a business into its different areas of expertise, including sales, marketing and HR as examples. While this is a very typical way of structuring a business, it can be problematic due to the creation of siloes and also reduced communication between cross functional teams.
As the name suggests, the product structure segments an organization into its different product areas. The advantage of having a reporting line that focusses on a single product is each product receives equal and undivided attention as a result of these clear delineations. The disadvantage of this structure is that it can cause inefficiencies due to a lack of communication and shared resources.
An organizational structure which is divided according to customer segment has the advantage of creating processes and systems specifically designed and customized for each customer type (similar to the product structure). But once again, as with the product structure, this organizational framework can lead to inefficiencies. Furthermore, any customers that don’t belong within a typical segment might end up being overlooked.
Ideal for businesses which have logistical or cultural considerations and which operate in multiple regions have an organizational structure that is based on geography.
Flatter structures have become increasingly popular in modern businesses, particularly in the case of small or startup companies. A flatter organizational structure increases communication and collaboration within a business and helps to foster ownership at every level. An additional benefit of a flatter structure is that it enables faster decision making due to a reduction in approvals required from higher levels within the organizational hierarchy. However, as a business grows, checks and balances are necessary to offset risk and hence this flat structure becomes less effective.
Businesses need to operate within a defined organizational structure in order to function and grow. Without this clarity, it is very challenging to achieve effective communication and efficient management of resources (including people, time and money).