What is organizational structure?

Organizational structure is the system by which an organization directs its activities in order to achieve its goals. It can include various elements, including rules, roles, and responsibilities. Organizational structure determines the flow of work and information through a company and its levels.

There are many different types of organizational structures, each with its own advantages and disadvantages. Ultimately, it is going through the steps of evaluating and strategically choosing an organizational structure that allows an organization to work efficiently and effectively.

Types of organizational structures

Let’s dive into some of the most common organizational structures.

Functional organizational structure

In a functional organizational structure, each department has its own staff director who reports to the CEO. This means that each department is managed independently. People are organized according to their skills and function in the company. 

Advantages of a functional organization include:

• Allowing people to specialize in specific roles
• Giving teams a sense of self-sufficiency 
• Scaling easily for companies of all sizes

Disadvantages include:

• Hampering interdepartmental communication and interaction 
• Creating silos
• Obscuring company strategies and processes

Flat organizational structure, or horizontal organizational structure

A flat organizational structure, also called a horizontal structure, works best for companies without many levels between upper management and staff, such as new start-ups. In this structure, almost all people have equal power. 

Advantages of a flat organization include:

• Allowing for less supervision
• Encouraging more involvement from and giving more responsibility to all people
• Creating more open communication
• Allowing for more agile, faster implementation of innovative ideas

Disadvantages include:

• May be confusing for people who do not have a direct supervisor to report to
• Can create generalists rather than specialists
• Is difficult to maintain with growth

Divisional organizational structure

A divisional organizational structure, also called a centralized structure, is one in which a company’s divisions control their own resources, operating almost like a smaller company within the larger organization. This works well in enterprise companies with many larger markets, territories, or departments. 

Advantages of a divisional organization include:

• Allowing divisions to make decisions independently and flexibly
• Adapting to customer needs
• Greater autonomy in individual departments allows for more innovation

Disadvantages include:

• Creating divisions between departments with poor communication and low interaction
• Can create intercompany division rather than unity
• Can lead to duplicate resources

What is a matrix organizational structure?

A matrix organizational structure is one in which cross-functional teams form fluidly according to project needs, with people moving from one department to another as required. 

Advantages of a matrix organization include:

• Encouraging people to use their skills in different ways
• Allowing for a more dynamic, innovative, and agile organization
• Letting supervisors choose team members based on the needs of a project for maximum success

Disadvantages include:

• Frequent change can be difficult for people to deal with
• Can create a conflict of interest between the needs of department and project managers

Benefits of organizational structures

As you can see above, each organizational structure has its benefits. But the most significant benefit is choosing and maintaining a structure customized to your organization, rather than allowing your workflows and reporting structure to simply “happen.”

Which organizational structure is best?

Ultimately, no single organizational structure is best across the board. The best organizational structure for your company will vary depending on your organization’s size, needs, growth, culture, and more. We recommend choosing an organizational structure according to your company’s goals and the vision you have for your future.

What is an organizational structure chart?

One of the best ways to understand organizational structures is to visualize them with an organizational structure chart, a graphic representation showing the exact hierarchy of any given structure. This highlights how the company organizes its people, who reports to whom, and the relationships various teams and individuals have. 

This tool can be helpful when choosing an organizational structure and as a way to track and manage yours after you’ve chosen it. 

Technology can be a tremendous tool for managing and visualizing your structure of choice. An HRIS platform with features like Bob’s Core HR software will allow you to create a customized org chart that displays the relationships between your people, teams, and departments for full clarity and transparency of your organizational structure.

Why should organizational structure be part of modern HR strategy?

Organizational structure helps guide companies through change and manage their workforce. Well-thought-out organizational structures better prepare companies to meet and navigate future challenges and adapt to changes in the market. When incorporated into a comprehensive HR strategy, organizational structure helps keep retention and engagement high, providing professionals with reliable expectations about how their roles and responsibilities fit into the company.