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Overview

The path to entrepreneurship can seem daunting at times. Running and managing a business is challenging. There are bound to be clashes and conflicts. It's the structure of the organization that ensures smooth operation at all times.

What is the structure of an organization? It refers to the plan of hierarchy along with the work allotted to everyone who is a part of the team. As Harold S. Geneen famously said,

"Every company has two organizational structures: The formal one is written on the charts; the other is the everyday relationship of the men and women in the organization."

A Brief Introduction To Organization Structure

There seems to be quite a lot of confusion about the structure of an organization. The basic purpose is to elaborate on the roles and responsibilities of the team. It is designed to ensure that the company reaches its goals with everyone doing their part perfectly.

Organizational structure gives clarity and focus to employees as they know who they are supposed to report to, and the responsibilities they have to manage. This establishes clear relationships between departments.

"When entire companies embrace a growth mindset, their employees report feeling far more empowered and committed; they also receive far greater organizational support for collaboration and innovation."- Carol S. Dweck

In the light of this, every company should have a structure of organization to maintain a chain of command. It gives employees a sense of accountability. But here's the thing. Every business is unique and is made up of different personalities. Furthermore, even the work environment of two separate businesses are not similar. So how can you expect one organization structure to work for all?

This is primarily the reason that a lot of types of structures of organizations have now emerged in the corporate world. And it's up to the employer to determine what works for them.

All You Should Know About The Types Of Organization Structure

"As a leader, you must consistently drive effective communication. Meetings must be deliberate and intentional - your organizational rhythm should value purpose over habit and effectiveness over efficiency."- Chris Fussell

Multiple factors have to be taken into account while determining the organizational structure a company should adopt. These include

  • The niche of the business
  • The type of company
  • The area where the company operates
  • Whether the company is service or product based

Every structure of organization has its own set of pros and cons. Let's go through some of the most commonly used organizational structures, and you can decide what works for you.

Functional Structure Of Organization

This is the most commonly used organizational structure in the business world. The reason? It establishes a clear hierarchy; hence following the chain of command is easier than ever. It starts with the CEO or general manager being at the top, followed by the department managers.

Furthermore, the best thing about the functional structure of organization is that there's no confusion regarding the chain of command.

Pros

  • Everyone has a clear description of their responsibilities and limits of authority
  • The organization is split into specialized roles
  • The managers are skilled professionals and have complete expertise in their line of work

Cons

  • It makes the organization a bit inflexible due to high specialization
  • There's a limited scope of growth for the employees which promotes dissatisfaction
  • The tasks cannot be transferred between departments

Geographical Organizational Structure

This structure of organization is most suited for those businesses that have a global reach. For these organizations, an independent hierarchical structure is mandatory for each territory.

To implement this structure, the company has to divide its departments and branches according to geography, with each division having its own manager and system.

Pros

  • Each geographical division has some independence to work as per the market trends of their territory
  • It makes the company policies flexible as they adapt to the state rules they are operating in

Cons

  • Implementing uniform new policies throughout the branches becomes challenging
  • There's little scope for workforce mobility

Product Organizational Structure

This structure of organization is designed for those companies that have a range of products or services. Hence they require structures that revolve around each product. Moreover, every department has a specific role and has to play its part in making the product a success.

To put it in simple terms, this organization structure ensures that departments develop specialization and acquire detailed knowledge about their customers and market.

Pros

  • The management is able to gauge the performance and profit of each product easily
  • It becomes easier to determine if some product is no longer catering to the market. The relevant department can be shut down without affecting other departments
  • The product department managers have enough authority to make decisions regarding their specific products, their marketing strategy, and more.

Cons

  • It can lead to unhealthy competition between the departments
  • There's no communication or collaboration between departments of the same company
  • It becomes challenging for the top management to understand market trends since each department puts up individual data

Hierarchical Structure

Companies implementing this organizational structure divide their employees into groups. Each group is then assigned a supervisor. Different methods are used for this division. For instance, an employer may choose to categorize the employees depending on their function or geography.

Sometimes, the type of products or services also determines how employees should be divided. You can think of this structure of organization as a pyramid since employees have multiple levels of authority. Of course, the highest authority is at the top, followed by the direct employees below them.

Pros

  • The lines of authority are pretty clear
  • It encourages the team to work together
  • Gives employees ample scope to grow

Cons

  • There's limited scope for innovation
  • Limited collaboration

Matrix Structure

In this organizational structure, the employees are grouped together as per their similar skills. They then have to report to multiple managers. For instance, there's a functional manager who supervises the project. The product manager handles strategies related to the product and so on.

Typically, multinational companies implement this structure of organization to ensure that the skills of their employees are used across all departments.

Pros

  • Makes the work environment more flexible
  • Enables employers to reach a balanced decision by consulting all the managers
  • The whole company works together as a team and shares resources

Cons

  • It becomes challenging at times to determine authority
  • Managing budget can be troublesome

Flat Structure

This is one of those few organizational structures wherein there's limited middle management. The staff-level employees directly fall under the upper management. Hence employees have more responsibility and authority compared to other structures.

The purpose of a flat structure is to reduce micromanagement and encourage employees to become more productive. Typically, this organizational structure is used by small companies that are just started and hence have limited employees and projects to handle. It's also referred to as the horizontal structure

Pros

  • Since there's no middle management, the company's budget is reduced significantly
  • It develops trust and relationships between staff and employers
  • The decision-making process becomes more feasible

Cons

  • It can be confusing to determine who the decision-maker is
  • Resolving conflicts becomes challenging

Network Structure

Managers in this organizational structure have the responsibility to coordinate with both internal and external entities and deliver their products or services in the best possible manner.

To put it in simple terms, the manager determines what tasks can be handled by the company and which responsibilities should be outsourced. Network structure relies on effective communication to work.

Pros

  • Makes the company more flexible
  • Gives the company enough time to focus on its product or service
  • Reduces costs with outsourcing

Cons

  • Employees don't have a well-defined role or function
  • Can be difficult to manage with the company's growth

Circular Structure

This one is a tad bit complicated. It also includes a hierarchy, but the demarcations are complex. Higher-level employees are depicted being the inner rings of a circle, while the lower level ones are along the outer rings

At the center is the leader who sends the orders outward instead of following the chain of command. The main factor that sets this organizational structure apart is that it has a distinct separation. It's designed to focus on the bigger picture wherein different departments come together to work on the same goal.

Pros

  • Promotes better communication among the staff at all levels
  • The information flows freely across the whole organization
  • Encourages collaboration among departments and ensures that they work together for the benefit of the company

Cons

  • Employees can be confused about who they have to report to
  • Requires extensive training
  • Slows down the decision-making process

Why Is It Important To Implement Organization Structure?

If you are a beginner, you might not yet have realized the value of the structure of the organization. However, it has quite a lot of compelling benefits that will make you want to learn more about it, and choose the one that best suites your business.

  • For one thing, it's excellent as a management planning tool. It gives employees required guidance and clarity regarding their role in the organization. It also enables you to have a road map in mind about what you should look for in employees while hiring.
  • Furthermore, you can ensure that the information flows freely among the departments via your organization structure. This makes decision-making more efficient.
  • The structure of organization enables employees to understand how they can play their role in the organization's goals and missions. It promotes teamwork.
  • Typically, an organization structure is depicted via a chart or diagram, which is quite an effective management tool for planning.
  • It makes it easier for your organization to implement strategies.

The only thing you have to ensure is that the organizational structure you select is suited for your business needs. The rest will fall into place, and you will be able to manage your company smoothly and with increased efficiency.