Every company — from the largest multinational conglomerate to the smallest entrepreneurial enterprise — has some kind of organizational structure. Sometimes, the structure developed organically as the organization grew larger. In other cases, the structure was carefully designed, probably with the help of outside consultants.
Structure is important because it determines the flow of power and information in an organization. There’s no one right organizational structure, and nearly every model struggles to find the balance between decentralization, which moves decision-making to the people closest to the issues the company faces, and centralization, which keeps company activities closely aligned to goals and objectives.
The most common organizational structures are based on company functions, divisions and geographies. Matrixed organizations, which combine functional and divisional structures, are also popular but can lead to confusion. These four types of structures — functional, divisional, geographical and matrixed — have become more challenging to maintain in today’s disruptive business environment, as the strict hierarchy often does not provide the speed or flexibility to react to changes in the environment. As a result, new structures are emerging, such as flat organizations and adhocracies.
Description: A functional organizational structure divides leadership and the flow of information by the major functions of the company, such as sales, marketing and operations.
Pros: Can be easily scaled; each function can specialize.
Cons: It might be difficult to share information between functions.
Description: A divisional organizational structure groups different divisions of the company together. This can often follow product lines. A healthcare products company might be divided into surgical tools, medical devices and home care products.
Pros: Each part of the organization is dedicated to a particular product line.
Cons: Can lead to duplication of resources, as each structural element will need its own sales force, marketing department, manufacturing facilities, operational leadership and so on.
Description: A geographic organizational structure is sorted into different geographic regions.
Pros: Different units can focus on the unique needs and wants of each geographic area.
Cons: Decision-making becomes highly decentralized.
Description: A combination of functional and divisional structures, the matrixed structure requires each employee to report to two (or more) supervisors. For example, in a matrixed organization, someone in marketing might also report to someone in one of the product divisions.
Pros: More decision-makers are informed and involved.
Cons: Very complex and confusing.
Description: Organic in nature, a flat organization allows for decentralization and gives wide control to individual professionals.
Pros: Very responsive to changing market conditions.
Cons: Chain of leadership can be hard to ascertain.
Description: An adhocracy is notable for its lack of any organizational structure or bureaucracy.
Pros: Very flexible and adaptable. Suited for creative endeavors.
Cons: Lack of control.