A carefully planned and clearly communicated organizational structure can make all the difference when you are looking to optimize your team’s strengths and meet your targeted goals.
Research indicates that structure is critical to your bottom line and your talent acquisition and retention efforts. Organizations with clearly defined structures outperform those that don’t across a variety of indicators, including return on investment, sales, revenue, and productivity.
What Is Organizational Structure and Why Is It Important?
All organizations and teams have a structure, whether they know it or not. How job functions and chains of authority are defined and set up in relation to one another make up your organization’s structure. Whether it’s top-down with highly centralized, formally defined chains of management, or more informal and decentralized with autonomous personnel each in charge of their own projects, it’s critical that your division of labor and chain of command be clearly understood by all contributors.
Companies with well-defined organizational structures tend to benefit from better cross-department communication and higher rates of efficiency and overall productivity. With fewer people uncertain about what their role entails and who they need to consult with when something goes wrong, operations run more smoothly.
The Hallmarks of Effective Structure
Which structure you choose is far less important than whether you choose one that makes the most sense for your company’s particular goals, workforce, size and scope, and industry or sector.
An effective organizational structure needs to be:
- Responsive to changes in technology, the marketplace, and within your industry or sector.
- Adaptable to changes in strategy or direction within your organization, such as those required when you develop a whole new product line or change your sales or distribution model.
- Well matched to your company’s values, mission, and workforce.
There is no one-size-fits-all structure that delivers optimum results for every business in every sector. Instead, management experts emphasize that your structure should be carefully considered, well planned, and clearly communicated across all levels of your workforce. It’s also important to keep in mind that your structure may need to be revised or even entirely replaced as your business grows from a small startup to a midsized competitor to a large-scale employer.
The following five structures are among the most popular.
1. Hierarchical Organizational Structure
This is the most prevalent structure and likely the one you are most familiar with, featuring a single individual, usually a CEO or president at the top, supported by a small number of C-suite executives at the next level with increasing numbers of individuals at each layer of descending authority. Sometimes referred to as a line structure, it works well for large companies that rely on a high level of centralized authority.
Typically, everyone knows where they fit in and what their responsibilities are in this type of structure. They also have a clear path ahead of them if they want to move up the chain of command, which can be a very effective motivator for many employees. At the same time, this type of org chart can lead to high levels of bureaucracy slowing decision-making and responsiveness, and even hindering innovation.
2. Divisional Structures
Organizations that utilize divisional organization models are highly siloed with each business unit within a larger company controlling resources and determining management priorities with little coordination with other units. Sometimes referred to as multidivisional (or M-Form), this type of structure often includes duplication of functions across divisions with each unit having its own dedicated marketing and sales teams, IT department, HR, and so forth.
Whether the divisions are organized by market sector, product line, or geographic region, arranging business hierarchies this way allows business units that reside within large corporations to be more adaptable than they might be if they had to wait for the go-ahead on every decision from powerful centralized stakeholders. It can also encourage healthy competition between divisions, prompting optimal performance from each.
3. Functional Organization
While the first two business configurations tend to be found at large companies, a functional organizational structure can be very effective for mid-sized companies. Though it is still top-down, management roles and department affiliation in a functionally aligned company are divided by job type, professional specialization, or role within the lifecycle of the business’s production and sales process.
This role-based composition makes sense for highly technical firms or for business endeavors that require a diverse range of highly trained professionals. However, as with a divisional model, functional teams can become siloed and even negatively competitive when it comes to securing resources. You may need to work hard with this type of structure to encourage cross-functional and interdepartmental cooperation and collegiality.
4. Team-based Structures
This type of workplace configuration has become increasingly popular over the past few decades, as more companies have come to recognize the value of diverse perspectives when it comes to problem-solving. A team approach often brings together small groups of specialists with professional backgrounds to develop new products, propose management solutions, or devise ways to capitalize on the opportunities presented by new technology. Though these teams are often led by a team leader, point person, or project manager, they tend to function collaboratively, with even junior members of the team being encouraged to bring new ideas to the table.
Many of today’s team-based practices have been influenced by the 2001 Agile Manifesto, a document assembled by a group of engineers urging a departure from more traditional, bureaucracy-heavy organizational principles in favor of a smaller, swifter, problem-focused approach to product development. The Agile management movement has led to the proliferation of team-based, project-focused business practice, as well the development of highly prevalent software, such as Scrum and Slack, designed with Agile principles in mind.
5. Flat or Horizontal Organizations
Flat or horizontal structures work well at small companies and startups, since these businesses don’t typically tend to have, nor do they need, multiple management levels. This structure is usually comprised of a founder at the top and a team of specialists around them who tend to have equal authority, at least initially.
The flexibility and intimacy of this structure can lead to rapid growth, at least at first. But as your enterprise grows it can become chaotic and you may need to consider adopting one of the more formal organization models.
Choose the Structure That’s Right for You and Learn How to Build Your Ideal Team
Now that you’ve learned the fundamentals of organizational structure, let Monster show you how to tackle all your management and hiring challenges with expert advice, helpful how-tos, and the latest HR and management news.