Organizational Structures: Traditional vs. Modern

Updated November 14, 2022

Illustration representing various types of organizational structures.

Employing a traditional organizational structure can ensure operations run efficiently. This system values top-down authority, along with specified roles and responsibilities for each employee. However, some businesses today are employing a more modern organizational structure that reduces centralized power and enables more employee flexibility.

In this article, we define the traditional organizational structure and compare its differences from the modern structure to help you determine the best option for your situation.

What is a traditional organizational structure?

An organizational structure defines how work gets delegated throughout an organization. A traditional organizational structure follows a system in which power flows upward through the organization, and all employees follow a chain of command.

The traditional organizational chart may look like a pyramid. The chief executive officer would sit at the top, and the layer underneath would consist of department managers who report to the CEO and oversee the overall operations of their department. Next would be first-line managers, or supervisors, who manage the daily operations of their department or teams and below are the non-management employees who report to them.

Examples of traditional organizational structures include:

Functional organizational structure: The organization divides its employees into groups based on their roles or specialties. For example, an organization using this structure may have a finance, a marketing and a research-and-development department, with each department having specialty groups within them who report to the department manager.
Divisional organizational structure: Larger organizations benefit from this type of structure, which divides employees into teams based on specific products, projects or locations. For example, a bank might have a retail banking division, an investment banking division and a private banking division.

What is a modern organizational structure?

A modern organizational structure does not have a hierarchical, top-down power arrangement. Also referred to as a contemporary organizational structure, it removes the departmental boundaries between employees and has them work on projects together in pursuit of the business's goals.

Employees working on projects receive requirements and productivity goals but have the power to determine for themselves the best way to complete the project. Typically, this structure promotes sharing skills and resources across the organization to reach its goals.

Examples of modern organizational structures include:

Matrix organizational structure: When following this structure, the organization still has departments but creates project groups that include employees from different departments. Employees working in this structure may have two supervisors—a project manager and a functional or department manager.
Flat organizational structure: The organization removes the layers of middle management between employees and executives, so this structure suits smaller companies or early-stage start-ups. Here, employees receive little supervision and have the power to form teams and choose which projects to work on.

Differences between traditional and modern organization structures

The following list demonstrates how traditional and modern organizational structures differ from one another:

Decision-making

In a traditional organizational structure, the decision-making power is highest at the top and reduces as it moves down the chart. The CEO has the most decision-making power and may delegate some decisions to their department heads, who may then turn some decisions over to their team supervisors.

In this structure, employees have little decision-making power and instead receive instructions from their supervisors. Having power centralized amongst a few members of the organization can be beneficial because it provides clear organization-wide messages about goals and expectations, eliminating the potential for confusion.

A modern organizational structure, however, does not use that system of centralized power. Instead, non-management employees often can determine what projects they want to work on and the methods they use to complete them.

In some situations, managerial staff may even collaborate with employees or take their feedback on decisions made at the company. Because employees have more decision-making power in a modern organizational structure, they can also proactively determine when and how to help other teams on projects rather than waiting for instructions from their supervisor to do so.

Communication

Due to the hierarchical nature of a traditional organization structure, the individuals at the highest level of management may have little communication with employees who are not their direct subordinates. For example, information from upper management may get disseminated through emails, newsletters or department heads.

A modern organizational structure has fewer departmental boundaries, which enables faster and easier communication methods. They may employ the use of instant messaging apps or software that allows everyone in the organization to communicate with one another. And in a flat organizational structure, for example, there's no middle management, so employees have more opportunities to communicate directly with higher-level managers.

Teamwork

Businesses that follow the traditional organizational structure divide their employees into departments or divisions depending on their roles. As a result, employees from different departments may have few chances to work with one another.

The focus on their specific role also enables them to gain significant knowledge and experience, potentially making them experts in their field. However, because they only perform their particular job and work with colleagues performing similar tasks, it may limit their opportunities to stretch their abilities and learn more about other aspects of the business.

Businesses with modern organizational structures promote the ideas of teamwork and collaboration, enabling employees from different areas to work together. Pulling in resources can help solve problems or reach goals more quickly.

These teams often have more autonomy than those in traditional structures, who must wait for instructions from their supervisor on how to complete tasks or projects. This system can help build relationships throughout the company, as employees realize they need to rely on one another, no matter what line of business they are in, to reach company goals.

Flexibility

Employees in traditional organizational structures have set roles and responsibilities that they fulfill. Organizations in stable business environments benefit from this structure because employees know how to complete their job and meet the typical challenges associated with it.

If the nature of the organization's business rarely changes, then these set roles can make work more productive and efficient. Due to the more rigid nature of these organizations, it may be difficult for them to adapt to dynamic environments, or they may be slower to meet unexpected challenges.

Employees in modern organizational structures have more flexibility in their responsibilities, which benefits organizations in more dynamic environments. Having that flexibility enables employees to easily collaborate across departments to solve challenges. These employees also gain the opportunity to learn new things by working on projects or teams of their choosing.