What are the different structures that traditional organizations can have?

The types of organizational structures in business are just as important as its products, marketing plan and long-term strategy. Businesses need a sturdy structure to attract and retain talented employees, as well as create a workable organizational hierarchy.

Typically, businesses choose from four types of organizational structure. Each comes with its own set of advantages and disadvantages. Choosing the right one for your business is imperative because poor organizational structure leads to confusion among employees, poor decision-making among managers and, ultimately, less than ideal results for a business.

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Picking The Right Organizational Structure

While there are variations, most companies are created based on one of the following four organizational structures. The goal for business leaders is picking the structure that works best for their particular situation.

Functional

A functional structure is the most traditional approach. It calls for grouping together people who do similar tasks based on their area of specialty. In other words, you’ll find all the accountants in finance and all the marketers in marketing. Managers led each area and report up to a director or executive who may oversee multiple departments.

The advantage here is clear: it provides those with similar abilities the ability to easily communicate and work on projects together. That’s also the reason this is the most popular business structure. The disadvantage is that teams may get “siloed,” unaware of what is happening in other areas of a company.

Divisional

In a divisional structure, people are grouped together based on the product or service they provide, not the work they do. For example, a large corporation such as General Electric has divisions for electronics, transportation, and aviation, each with its own team of accountants, marketers, etc. Global corporations may have divisions based on different geographic areas. On a smaller scale, a restaurant that also provides catering services may have separate divisions to oversee weddings, corporate events and business within the main restaurant.

Matrix

A matrix structure is a hybrid of the functional and divisional structures. It may involve employees reporting to different bosses depending on their current assignment. For example, a software design specialist may report to her boss in IT, but she’s also brought onto specific projects because of her expertise. When that happens, she will report to a different boss as long as that project continues.

The disadvantage is that employees may find it confusing to report to multiple bosses. But clear communication on priorities at all levels can eliminate these issues. The matrix structure requires a great deal of planning but can allow for the creation of the best possible teams to tackle the biggest challenges.

Flat

The flat structure dispenses with the usual hierarchy of a functional structure, decentralizing management and doing away with the need for middle manager bosses. Employees essentially act as their own boss, giving them the ability to communicate directly with peers on ideas and projects.

The advantage is a lot more freedom for employees, which requires a group of self-starters who don’t need managers checking up daily on their work. A flat structure is common in incubators and startups where the focus is on product and services design, not production or top-down management structures.

All four types of organizational structures in business can work well in the right situations. While most companies will choose from the functional or divisional approaches, a flat approach is becoming increasingly popular with modern companies.

If you’re trying to reorganize your business, you may be contemplating restructuring your business into teams. Traditional organizational structures usually have a leader and multiple layers of subordinates. In a traditional organization, occupations are grouped together. In a divisional structure, each business unit conducts its own activities, such as sales, marketing and training. These traditional structures tend to rely on formal reporting relationships and work poorly when rapid changes must be made. On the other hand, team-based organizations are less structured and more amenable to changes as they arise.

Enhanced Communication

A difference between traditional organizations and new organizations is that the new organizations allow for frequent communications. A traditional organization’s communication methods usually include newsletters, email and other company collateral that is disseminated from the top of the organization down through the ranks.

Since team-based organizations are more flexible, communication is usually more frequent and informal than traditionally structured organizations. For example, the team may use social media technology or workflow tools such as forums or a live chat for announcements and status updates.

Optimized Decision Making

The inherent bureaucracy of traditional organizations may hinder creativity and innovation because managers of traditional organizations usually make decisions without input from subordinates. A difference between traditional organizations and new organizations is that the new organizations are more effective with decision making.

In a team-based structure, managers typically seek participation from staff members. Depending on the type of decision, time and resources available, the leader may conduct a brainstorming session to gather info and ultimately make the best decision. This means of empowerment for team-based employees should result in heightened productivity and a better quality of employee work and work life according to the American Society for Quality (ASQ).

Meetings

In traditional organizations, managers usually schedule and lead meetings including agenda creation and control of the meeting’s flow. In a team-based organization, employees are empowered to call and lead meetings on their own.

Team members may report to more than one manager in a matrix or team-based structure and attend multiple meetings on the same topic. Similarly, team-based employees may work in different locations requiring conferencing software for audio and video so they can interact with each other. Since team-based organizations are less formal and structured than traditional ones, they allow for the creation and deployment of sub-teams that exist only until they have accomplished what is required. According to a February 2018 Gallup article, teams constantly form, disband and reform according to the needs of specific projects and customers.

Accountability

In a team-based organization, team members are accountable to each other, and to the team as a whole. This mutual accountability means that the entire team is responsible for its collective actions. This is the opposite of accountability at an individual level inherent in traditional organizations.

Although there are times when teams could have collectively performed better, lack of effort and accountability are rarely intentional. According to a February 2020 Harvard Business Review article, a team’s underperformance is most likely due to limited resources, ambiguity regarding roles, a poor strategy and/or unrealistic goals.

Improved Performance Evaluation

Managers of traditional organizations typically review the performance of all subordinates which can be a limited perspective. A difference between traditional organizations and new organizations is that the new organizations have more insightful performance evaluations.

Team-based organizations provide a more accurate picture of the employee’s strengths and weaknesses because feedback is solicited not only by managers, but by peers, subordinates and business partners. Small businesses in particular benefit from team-based performance evaluation as their accuracy helps reveal performance gaps that can be addressed more quickly than in traditionally structured organizations.

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