10 Types of Organizational Structures for Businesses

Updated July 31, 2023

Illustration representing various types of organizational structures.

To ensure operations run smoothly, many businesses follow an organizational structure that best supports their size and business goals. Having and communicating a clear organizational structure helps your employees understand their roles and corresponding expectations and informs goal-setting.

In this article, we define 10 common types of organizational structures along with their pros and cons to help you choose the right one for your business.

What is an organizational structure?

An organizational structure, also known as "organogram structure" or "org structure," outlines the hierarchy within an organization and describes the roles, responsibilities and lines of command that exist to achieve the organization's business goals.

By establishing transparent relationships between departments, organizational structures provide clarity, focus and efficiency to employees so that they know who they report to and their goals. To visually explain the company's reporting and accountability structure, businesses often create "org charts."

Related: Organizational Structure: Definition and Types

Three people sit at a table and compare different kinds of organizational structures for companies

10 types of organizational structures

Here are 10 types of organizational structures commonly used by businesses with pros and cons for each:

1. Hierarchical structure

In a hierarchical organizational structure, employees are grouped and assigned a supervisor. It is the most common type of organizational structure. Employees may be grouped by their role or function, geography or type of products or services they provide. This structure is often depicted as a pyramid because there are multiple levels or authority with the highest level of leadership at the top, their direct employees below them and so forth.

Benefits of this type of structure include:

  • Establishing clearly defined levels of authority

  • Promoting teamwork and department loyalty

  • Fostering employee development and promotion opportunities

Potential disadvantages include:

  • Limiting collaboration

  • Restricting innovation

  • Creating bureaucracy that must be managed

Related: Hierarchical Structure: Definition and Examples

2. Functional structure

In a functional structure, the organization is divided into groups by roles, responsibilities or specialties. For example, an organization may have marketing, finance and sales departments that are each overseen by a manager who also has a supervisor that oversees multiple departments. A functional structure can be beneficial because departments can trust that their employees have the skills and expertise to support their goals.

Benefits of this type of structure include:

  • Establishing clearly defined roles and expectations

  • Facilitating improved performance and productivity

  • Allowing for skill development and specialization

Potential disadvantages include:

  • Creating barriers, or silos, between functions

  • Limiting employees' communication and knowledge with other departments

  • Inhibiting collaboration and innovation

Related: Your Guide To Functional Structure for Business: Advantages and Disadvantages

3. Matrix structure

The matrix organizational structure resembles a grid in which employees with similar skills are grouped and report to more than one manager. This often includes a functional manager who oversees projects and their progress and a product manager who is responsible for the company's strategy and success regarding product offerings. The matrix structure is typically used by large, multinational organizations and promotes sharing skills and knowledge across departments to complete goals.

Benefits of this type of structure include:

  • Enabling a flexible work environment

  • Fostering a balanced decision-making process

  • Promoting open communication and shared resources across the business

Potential disadvantages include:

  • Creating confusion about authority

  • Tracking budgets and resources can be difficult

  • Limiting efficiency of key performance indicators (KPIs)

4. Flat structure

In a flat organizational structure, most middle-management levels are removed so there is little separating staff-level employees from upper management. Employees are given more responsibility and decision-making power without the usual hierarchical pressures or supervision and can often be more productive. Small companies and early-stage start-ups mostly use this type of structure because they often have fewer employees and projects to manage. It may also be referred to as a "horizontal structure."

Benefits of this type of structure include:

  • Reducing budget costs due to lack of middle management

  • Building relationships between staff and superiors

  • Facilitating a quicker, more straightforward decision-making process

Potential disadvantages include:

  • Requiring extensive planning to be effective

  • Causing confusion over who makes decisions

  • Requiring contingency plans to resolve conflicts

Read more: What is a Flattened Organizational Structure? (With Benefits and Tips)

5. Divisional structure

In a divisional structure, organizations are split into divisions based on specific products, services or geographies. For this reason, this structure is typically used by large companies that operate in broad geographic areas or own separate, smaller companies. Each division has its executive leadership, departments and resources. For example, a large software company may separate its organization based on product type, so there's a cloud software division, a corporate software division and a personal computing software division.

Benefits of this structure include:

  • Allowing divisions to work independently

  • Meeting individual divisions' needs more quickly and specifically

  • Promoting focus on specific products or services

Potential disadvantages include:

  • Scaling limitations

  • Duplicating resources or activities

  • Decentralizing decision-making

Related: Pros and Cons of Implementing a Divisional Structure

6. Network structure

In a network structure, managers at an organization will coordinate relationships with internal and external entities to deliver their products or services. For example, a retail company will focus on selling clothing items but will outsource the design and production of these items in a partnership with other companies. This structure focuses more on open communication and relationships than hierarchy.

Benefits of this type of structure include:

  • Giving the organization more agility and flexibility

  • Allowing the core company to focus on what it's best at

  • Helping lower costs through outsourcing

Potential disadvantages include:

  • Duplicating services and resources

  • Creating confusion about specific roles and job functions

  • Growing too complex and challenging to manage

Related: What To Know About Network Organizations

7. Line structure

In a line structure, authority within the organization flows from top to bottom and there are no specialized or supportive services. It is one of the simplest types of organizational structure. The organization is typically divided into departments overseen and controlled by a general manager, and each department has its manager with authority over its staff. The departments work independently to support the organization's primary goal.

Benefits of this type of structure include:

  • Fostering effective communication and a stable environment

  • Providing clearly defined responsibilities and lines of authority

  • Adapting quickly to changing conditions or situations

Potential disadvantages include:

  • Limiting specialization

  • Becoming rigid and inflexible

  • Giving too much power to a manager

Related: What Is a Line-Staff Organization? (With Features, Pros and Cons)

8. Team-based structure

In a team-based organizational structure, employees are grouped into skills-based teams to work on specific tasks while working toward a common goal. Often, this is a flexible structure that allows employees to move from team to team as they complete projects. This structure focuses on problem-solving and employee cooperation.

Benefits of this type of structure include:

  • Helping streamline an organization's processes by breaking down silos

  • Enabling more decision-making power with minimal management

  • Increasing flexibility by focusing on experience instead of seniority

Potential disadvantages include:

  • Decreasing organization consistency

  • Limiting contact with other functions

  • Increasing potential for conflict

Related: 8 Advantages of Using a Team-Based Structure in Business

9. Circular structure

A circular organizational structure relies on a hierarchy to depict higher-level employees within the inner rings of a circle and the lower-level employees on the outer rings. Seated at the center of the organization, leaders do not send orders down the chain of command but rather outward. While many other structure types contain different departments that work independently with individual goals, this structure removes that strict separation. It looks at the bigger picture with all departments being part of the same whole.

Benefits of this type of structure include:

  • Encouraging communication across all levels of staff

  • Promoting the free flow of information across the business

  • Collaborating amongst departments, rather than separation

Potential disadvantages include:

  • Causing confusion over who to report to

  • Requiring more resources and training

  • Causing a slowdown in decision-making

Related: 12 Types of Organizational Charts for Companies

10. Process-based structure

In a process-based structure, the organization is designed around the flow of its processes and how the duties performed by its employees interact with one another. Instead of flowing from top to bottom, this structure outline services from left to right.

An executive at the top of the structure oversees the departments below, representing the different processes, but each process cannot start until the one before it has finished. And each department will have its own management and team working to fulfill its duties so that the business can move on to the next task and eventually reach its ultimate goal, such as selling a product to consumers.

Benefits of this type of structure include:

  • Improving the company's efficiency and speed

  • Encouraging teamwork between departments

  • Adapting quickly to meet industry changes

Potential disadvantages include:

  • Erecting barriers, or silos, between groups

  • Limiting communication

  • Requiring more resources to achieve process optimization

Frequently asked questions

How do you choose an organizational structure?

Reflect on the company's goals, size and infrastructure to help you determine what the right organizational structure is to facilitate growth and operational efficiency. It might also help to consider company values. For example, if collaboration and cross-functionality are key values, a circular or flat structure might be the most suitable.

How does organizational structure affect a company's success?

A company's organizational structure defines how it executes projects, so it has a direct impact on productivity and efficiency. The structure defines who works on which tasks, who approves project outcomes and how teams collaborate. Your organizational structure can also affect your bottom line, as each organizational structure has unique costs.

What's the best way to change your organizational structure?

Here are the steps to adopt a new organizational structure successfully:

  1. Carefully reflect on the key challenges you hope to solve and the resources, skills and people the company requires to address them.

  2. Plan your new organizational structure carefully and communicate your plans to leadership before making a mass announcement.

  3. Expect to make minor adjustments every few months as you learn more about how to optimize the use of talent and resources.

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