A top-down hierarchical org structure is the most common way businesses are organized, but that’s far from the only shape a company can take. Although vertical tiers are probably most familiar and provide a very well-defined chain of command, other structural shapes have their own advantages that may be better suited for certain companies depending on their size and the services they offer.

Optimizing a company structure can help eliminate unneeded management positions and reduce bureaucracy in the business process. Read on to find out what the seven most useful organizational structures are and the considerations you should make to choose the best one for your circumstances.

What is an Organizational Structure?

An organizational structure isn’t necessarily a highly detailed or specific map of the entire company. It usually addresses employee responsibilities and the pecking order, so to speak. Companies and managers may use the market, the product, the customer base, geography, or the nature of their particular business processes to craft their organizational structure map.

The degree to which the structural map is adhered to will vary depending on circumstances and the company culture. Naturally, the more the map is followed the more useful it will be. But treating it like a rigid code of conduct isn’t quite the right tactic.

These structures are useful tools for employees to understand their place in the company, where they can expect to reach in their professional future, and who they should speak to about problems and ideas. To that end, whatever is outlined in this map should be true to reality. Crafting such a structure requires an honest look at the company and regular updates when changes occur.

Key Factors of Organizational Structuring

Choosing between structures has effects on a few key aspects of the business and decision-making processes throughout the organization. Those responsible for designing the structure should be aware of such impacts in the following areas:

• Span of Control
  

Some start-ups or small businesses that function more like families than they do like businesses might not like to think of their processes in terms of control, but like it or not this is an important area for every management style and structure.

Span of control refers to the tasks that fall under an individual’s or department’s responsibility and also to the number of people in a manager’s direct control. Defining the span of control at various levels makes assigning responsibility and making decisions much easier later on.

• Innovation
  

Every company should be thinking about innovation at every stage, but in this case, we aren’t talking about inventing new approaches as much as facilitating innovation when it arises organically. Your company hierarchy affects how members can communicate with each other. When it comes to generating new ideas, will people know where to bring their constructive theories?

On the other hand, too much space for anyone to have a huge impact on projects erodes well-defined responsibilities and roles. Striking that balance is key to keeping everything running smoothly while also taking your business to new heights.

• Business Strategy
  

Beyond innovation and new idea generation, how your company is able to move centers on how it is structured. For example, if part of your overall strategy is remaining agile so that your company can quickly respond to market changes or be the first of its kind in a certain area, you’ll want a corporate hierarchy that allows for such agility.

We’ve already briefly touched on how a rigid top-down hierarchical org structure creates bureaucracy. Cutting through all that red tape takes time, which means your company may not be moving on new factors as fast as you would like it to. However, businesses that need to protect sensitive user data may not be able to have the flat org structure that enables companies to be agile.

• Company Life Cycle
  

When you’re just starting out, it’s common to concentrate the bulk of the decision-making power on the founder of the company and perhaps some other managers depending on the size of the company. For some businesses, altering that original hierarchy isn’t necessary or desirable. However, as a company ages and expands, a new structure is often necessary.

Legacy organizations may benefit from shaking up their structure to allow for new, creative ideas to flourish. Creating an accountability system allows for a more lateral hierarchy so even older companies can respond quickly to new information, a key ability in our social media-driven society.

• Org Size & Healthy Growth
  

Structuring a business incorrectly can be like an invisible weight hindering growth and development that would otherwise be flourishing. In addition to preventing novel ideas from reaching management, overly bureaucratic structures could also stymy growth as profits fail to grow sufficiently to accommodate new roles when they are needed.

Growth is a central goal of every business at least to a certain point. Even the most well-liked and effective manager can be turned into a stumbling block if they aren’t positioned in the right kind of organizational structure.

7 Types of Organizational Structures

Understanding the most common ways of structuring a business is simple enough, although applying any one of these strategies to a specific business will likely take time.

Here are the seven most common organizational structures for businesses of any size.

1. Vertical/Hierarchical Org Structure

The most common way to view responsibility and authority within an organization is with a CEO or founder at the head of the company and successive levels of lower managers and other roles empowered to make decisions within a limited realm. The chain of command goes from the top-down, as do responsibilities.

Although such an obvious hierarchy may aggravate some, it’s a tried-and-true method for clearly defining the span of control across a company. It could create additional bureaucracy but it doesn’t do so automatically.

Advantages:

• Clear roles and responsibilities

• Highlights internal career paths

• Direct lines of communication

• Easy to group employees by geographic region or function

• Fairly easy to scale by creating subdivisions

Disadvantages:

• Top-heavy, over-reliant on top brass

• Can create tons of red tape

• Lower-level employees are likely to feel unimportant

2. Horizontal/Flat Org Structure

A counterbalance to the top-down hierarchical org structure is a more horizontal flat org structure in which the levels between upper-management and the rest of the staff are reduced. This is most common in smaller companies and start-ups where the founder/CEO works directly above the majority of the workforce.

The working environment is usually more relaxed and informal at companies that have a horizontal structure, although when problems arise there are fewer people to hold responsible, meaning stress levels can skyrocket during difficult periods.

Advantages:

• More independent workers

• Faster decision-making process

• Lower-level employees have greater input

• Better coordination and communication

• Greater investment from employees

Disadvantages:

• Resolving conflict may be more challenging

• Difficult to scale past a certain point

• More generalized employees rather than specialized ones

3. Matrix Organizational Structure

Blending aspects of both the hierarchical org structure and the flat org structure, a matrix will have executives overseeing horizontal teams divided according to projects. Within each project, a chain of command will also exist. This allows for some of the advantages of both methods of structuring a business to shine through.

Each team could have a single leader or there could be several managers depending on the project size. Similarly, there could be one CEO at the head of it all or there could be a C-Suite of specialized executives.

Advantages:

• Easy to set up temporary or long-term teams

• Employees may have a specialty on their team

• Reduces the number of final decision-makers

• Restructuring is fast and modular

• Members of the workforce are more familiar with one another

Disadvantages:

• Changing roles too frequently could be frustrating

• Indirect hierarchies might create multiple managers

• Employees may never see a project all the way through

4. Divisional Organizational Structure

As the company grows, separating teams into unique divisions allows for them to become more permanent while specializing even more. These divisions could be according to the product they produce, their geographic region, their part of the overall business process, or any other of several possibilities.

All of these divisions will still have to be coordinated with one another, creating a need for a new level of managers. However, once you reach a certain stage of growth, that could be inevitable no matter which organizational structure you choose.

Advantages:

• Large companies are more manageable

• Scaling is easy above a certain level

• Separate services and product lines are independently operated

• Big markets or cross-regional companies are more functional

• Employees can specialize in markets or geographical areas as well as skills

Disadvantages:

• Atomization may stem from more autonomous divisions

• Coordinating marketing or communication is more difficult

• Role or responsibility duplication is more likely

5. Network Structure

Increasingly common as companies outsource more and become more connected globally is the network-based organizational structure. Because there is a blend of independent contractors, freelancers, and outside organizations working with the original company to complete the business process, the structural map has to make a wider umbrella.

Developing this network map can also help explain the whole business process to employees and clients. It will also tell all these different people who they should go to with problems and who their immediate ‘coworkers’ are, even if they aren’t working together under the same roof.

For managers and other crucial decision-makers, illustrating the network can also help streamline the whole business process and highlight slowdowns or bottleneck issues.

Advantages:

• Accommodates remote workers much better

• Helps illustrate complicated business processes

• Less hierarchical and typically more flexible

• Employees can be more independent

• Visual aid for stakeholders

Disadvantages:

• More complicated structure

• Relies on digital tools like the internet

• Creates a greater number of supervisors for oversight and coordination

6. Circular Structure

More open-ended in its application than some of the other structural models, a circular structure creates a new axis. The complete organization is modeled as a circle with as many internal rings as are necessary to accurately illustrate the business processes. Executives and other important decision-makers are near the center of the circle while lower-level employees are found on the outside.

The purpose of this new distribution is to illustrate the top brass as part of a whole rather than isolated at the top of one particular chain. Think of it like the center of a wheel and the departments of the organization fanning out like the spokes of a wheel. You could also divide the circle into overlapping sections to illustrate how some duties are shared between departments and through vertical hierarchies.

Advantages:

• Fosters better communication

• A holistic approach to business, rather than fragmentary

• Reduces repeat duties

• Leadership works as a team

• More flexible career paths throughout the organization

Disadvantages:

• Teams are less autonomous

• The chain of command may be less clear

• Definite hierarchy still required

7. Process-Based Structure

One of the most intuitive ways of structuring a business is to group teams and employees according to their role in the overall business process. Large and small companies can both benefit from this kind of organizing. Some divisions or teams may be limited to one or two people depending on their level of specialization, but in that setup, they will be free to complete their work more efficiently. They could also be seen as ancillary parts of a larger team.

What makes this type of organizational structure so useful is that it can fit any kind of business process. If you have an R&D team, a marketing team, a design team, PR, shipping, and manufacturing all working together, you can compartmentalize them and appoint coordinators to make sure everything continues running smoothly.

Today’s business world is rapidly and constantly developing. Basing your structural organization on separate processes ensures people don’t need to get bogged down with work outside their practice area and makes them more adaptable to changes in their particular field.

Advantages:

• More adaptable, specialized workforce

• Clarify coordinating roles and responsibilities

• Facilitate different stages of the business process working together

• Incorporate many individual functions within one stage of the process

• Isolate and address problem areas more quickly

Disadvantages:

• Different sectors may have limited interaction

• Coordination efforts may be required more frequently

• Responsibility could be shifted to other divisions or teams

How to Choose the Best Organizational Structure

The first thing you need to do is analyze exactly how your company does what it does. This will be easier before you get things off the ground to some extent, but you will also find that the course of business may work out to be a little bit different than you expected when you were still in the planning stages.

Whenever possible, involve your employees in creating and making alterations to the company structure. They know their area of the company the best, plus it will get them more involved and invested with the company.

It’s probably safe to assume that more than one of these structural styles will suit your particular organization. Implementing any one of them according to the company culture and the mission statement of the org is the best way to make sure that the structure you’ve chosen will make things run more smoothly.

There are many pieces of software and other tools that can help create a map of the organization’s structure. Choose one and start mapping things out. Just don’t be afraid to make changes whenever they’re needed.

Conclusion:

When business seems to be going well but the company just can’t seem to scale properly, you might be facing a structural problem. Great talent and strong leadership are crucial to a successful company, but their effects may be sabotaged if the structure of the organization doesn’t allow them to flourish.

Any structure has its disadvantages. The most important thing to do is figure out which one suits the company culture and business goals of your company and then get employees and stakeholders involved in implementing that structure as much as possible.

Don’t let these 7 structural definitions limit your thinking, either. Blend pieces of each together until you have the right backbone for your organization and don’t be afraid to revisit your map as conditions require. Whether you choose a flat org structure or a vertical one, the right implementation is key. Once you have the right structure in place, you’ll be pleasantly surprised how smoothly things run and how eminently scalable your business process becomes.