Types of Organizational Structures for Businesses

Mary Gormandy White
Organizational Structure

Are you interested in learning about different types of business organizational structures? The way a company is structured refers to how work is allocated and how the internal system for reporting and supervision is defined. Organizations can have functional, divisional, or matrix structures and they can also be flat or tall.

Three Types of Business Organizational Structures

Businesses roles and responsibilities can be organized following a functional, divisional, or matrix structure. Companies select the structure that seems to make the most sense for the type and size of business they are operating, recognizing that there are unique challenges associated with each option.

Functional Organizational Structure

In a functional organization, employees are grouped together and work is allocated based job functional. In a company with this type of structure, there will be someone who is in charge of marketing, and all of the marketing work for the entire entity will be performed by people in the marketing department. The same is true for all of the other departments within the organization. In addition to marketing, common functional divisions include finance, purchasing, production, sales, and others.

Divisional Organizational Structure

In an organization with a divisional structure, each separate division of the organization is responsible for its own operations. For example, a food service company that owns a casual dining restaurant chain and a fast food brand may be organized by division. Rather than having corporate level functional responsibilities for all marketing activities, there may be a casual dining marketing department and a fast food marketing department that are independent of each other.

Sometimes companies break their structures into division based on brand, but other times the dividing lines may be based on market served, such as a commercial versus a residential division for a utility company, geographic location, industry served, or other relevant factors.

Matrix Organizational Structure

The defining characteristic of a matrix structure lies with the fact that employees who work in this type of environment have two bosses. Typically, in this situation, there is functional supervision at the location where the employee works as well as divisional supervision at the corporate level.For example, many large companies have a corporate human resources division, with individual HR representatives stationed at local facilities. At the local level, the HR representative may report to the operations manager charged with responsibility for that facility. However, the operations manger does not likely have specific expertise in human resource management and is not directly involved in setting corporate HR initiatives. For that reason, the HR representative may also report to a corporate HR manager or director, resulting is a matrix structure.

Additional Business Structure Considerations: Flat vs. Tall

In addition to defining the reporting structure, businesses structures can also be described in terms of whether the organization is tall or flat. This characteristic refers to how many layers of management there are in an organization.

A tall organization is quite hierarchical, with several different levels of management. Individual managers have a narrow span of control, with a relatively small number of employees in their direct reporting line. Decision making tends to be centralized with management in tall organizations.

A flat organization is one where there are relatively few levels of management. Supervisory employees tend to have a wide span of control, which means they are likely to have a relatively large number of direct reports. Decision making is less centralized, with employees being empowered to exercise discretion in their work and having an opportunity to participate in much of the decision making that takes place.

Choosing an Organizational Structure

Choosing among the types of business organizational structures is a big decision that should not be taken lightly. It's important to look an organization's size, number of facilities located in different geographic areas, marketing strategy, business philosophy, and other factors when making this decision. Regardless of the type of structure you choose, it's important to clearly communicate expectations to employees at all levels, making sure that each member of the team is clear about his or her reporting lines.

Types of Organizational Structures for Businesses