Making an Organizational Structure for a Business

An organizational structure is crucial to business operations because they provide businesses with an outline that details how they set goals, make decisions, delegate tasks to staff and direct processes. If you’re developing an organizational structure for your business, find out how to create each element of your structure with the information in this guide.


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What is an organizational structure?

An organizational structure is the system that businesses use to outline and direct specific processes that uphold company missions and achieve company goals. Several elements businesses consider in an organizational structure include policies, task and project allocation and the creation of business departments. Additionally, businesses will typically display their organizational structures in flowcharts to outline these elements.

Read more: Changing the Organizational Culture of Your Business


Types of organizational structures

There are four key types of organizational structures:


Functional structure

A functional structure is one of the most common organizational structures businesses use. In a functional structure, an organization is departmentalized based on employees’ common job roles. For instance, a business that uses a functional structure will commonly form departments based on the nature of specific job roles like marketing, sales, finance and customer service departments.


One key aspect of the functional organizational structure is that it allows businesses to create a higher degree of employee specialization. Another advantage of the functional structure is its flexibility in regard to business growth. As your business expands, you can adapt the functional structure to the changes in your workplace.


Divisional structure

A divisional structure consists of several smaller functional structures that work together to perform essential business operations. Divisional structures come in three distinct formats: geographic division, process-based division and market-based division. An example of a geographic divisional structure is a company that spans several different geographic regions with each regional division containing its own functional departments.


Process-based divisional structures organize the essential activities that teams perform and the relationship these activities have with one another. A good example of a process-based structure is the customer acquisition process. For one process to move forward, like order fulfillment, employees must complete a previous step in the order of operations. In this case, the step before order fulfillment is to convert leads to customers.


In a market-based structure, divisions are based on specific markets or industries and the products and services tailored to those markets. For instance, a company that specializes in construction might separate its services into segments for commercial and residential customers.


Matrix structure

The matrix structure is a nontraditional organizational structure that doesn’t follow a typical reporting hierarchy that a functional or divisional structure does. Instead, all teams and staff members have multiple reporting relationships. In most matrix structures, businesses designate a functional reporting line, similar to a traditional hierarchy, and a product-based or deliverable reporting line.


In the functional reporting line, teams still follow a traditional hierarchy in documenting and reporting to supervisors and managers regarding project tasks and other business processes. In the product-based reporting line, teams collaborate across departments to document and report on the products or deliverables that result from their work. These two reporting relationships can overlap, and this is why the matrix structure is so flexible. There are two or more chains of command rather than one in this structure, which allows for more efficient decision-making between teams and managers.


Flat or organic structures

Flat, or organic, organizational structures can limit the level of formal management within an organization. Rather than a traditional hierarchy of tiered management, this type of structure provides opportunities for all employees to perform in leadership roles. The key benefit of this structure is that it gives business teams the freedom to initiate processes and make decisions without the need to wait for higher-level approval. While the flat structure still requires a procedure for business reporting and documentation, this format can give staff the autonomy they need to achieve project objectives.

Read more: How to Manage Employees


How to create an organizational structure for your business

No matter what type of structure you integrate, use the following steps to guide you in its development:

  1. Create a plan for departmentalization. Organize the departments, roles and positions within your business. For instance, create a marketing department, a financial department or other departmentalized roles that have specific functions within your organization.
  2. Develop a chain of command. Determine each department’s involvement in the decision-making process and create a reporting procedure that outlines the expectations for staff, management and executives.
  3. Determine the span of control. Identify how many staff members, departments or teams that managers and supervisors will be responsible for.
  4. Outline each department’s work specialization. Delegate the specific work tasks that each department will be expected to perform. This ensures that all staff members are responsible for performing specific duties based on their level of education, experience and skills.
  5. Formalize the structure with visuals. Create a flow chart to illustrate the organizational structure. This ensures all employees have specific duties that they perform to further your business’ growth and development.

When you integrate your organizational structure, communicate with staff and team members about the organizational changes you’re implementing. This way, all teams are aware of their roles and responsibilities and understand what’s expected of them.

Read more: How to Motivate Employees


Organizational structure FAQs

These frequently asked questions provide additional information about organizational structures:


What type of organizational structure do startups commonly use?

Startups typically integrate organic or flat organizational structures. This is due to the nature of the developmental processes in startup businesses. Organic structures give startup teams autonomy and equal input in making decisions and initiating projects that help the company grow.


Can I implement more than one organizational structure within my business?

You can combine two or more types of organizational structures to suit the needs of your business. Many organizations do use a combination of more than one type of structure, especially if the nature of the company focuses on diverse processes (like IT companies) to achieve business goals.


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