Company employees who work line positions and staff positions are ultimately responsible to the

Organisational structures define a hierarchy within an organisation. The two most common arrangements include:

• a flat organisational structure
• a hierarchical organisational structure

Each structure has its advantages and disadvantages. The most appropriate arrangement will depend on the size and the type of your business, and the number of management levels that you need. See reasons for changing your organisational structure.

How does a hierarchical organisational structure work?

A hierarchical structure is typical for larger businesses and organisations. It relies on having different levels of authority with a chain of command connecting multiple management levels within the organisation.

The decision-making process is typically formal and flows from the top down. This creates a tall organisational structure where each level of management has clear lines of responsibility and control. As the organisation grows, the number of levels increases and the structure grows taller.

Often, the number of managers in each level gives the organisation the resemblance of a pyramid. This structure gets wider as you move down - usually with one chief executive at the top, followed by senior management, middle managers and finally workers. Employees' roles are clearly defined within the organisation, as is the nature of their relationship with other employees.

What are the advantages of a hierarchical structure?

A hierarchical structure can provide benefits to businesses. For example, it can help establish:

• clear lines of authority and reporting within the business
• a clearer understanding of employee roles and responsibilities
• accountability for actions or decisions at different management levels
• clear career paths and development prospects which can motivate employees
• opportunities for employees to specialise and develop expertise in their field
• close supervision of employees through a narrow span of managerial control
• a culture of loyalty towards teams, departments and organisation as a whole

What are the disadvantages of a hierarchical organisational structure?

Workplace hierarchies are not always effective. Common disadvantages of hierarchical structures include:

• complicated chains of command which can slow down decision-making
• inconsistencies in management at different levels which can impede work
• delays in communicating vertically through the levels and horizontally between teams
• less flexibility to adapt and react to environmental and market pressures
• disconnect of employees from top-level management
• a strain on the employee-manager relationship due to lack of autonomy
• difficulties collaborating outside of the team 'silo' or dealing with team rivalry
• considerable amount of corporate overhead to support the many management layers

Generally, tall organisations are very complex. Strategies should be in place to deal with the challenges that are likely to occur under this structure. This could include creating a decentralised organisational structure - one in which senior management assigns the authority for limited decision-making to lower levels in the organisation.

For some businesses, a tall organisational structure will not be appropriate at all. Find out more about the flat organisational structure.

If you decide to change your organisational structure, make sure that you manage the process correctly. See best practices in change management.

7 types of organizational structures (+ org charts for implementation)

Reading time: about 7 min

Posted by: Shannon Williams

1. Hierarchical org structure
2. Functional org structure
3. Horizontal or flat org structure
4. Divisional org structures (market-based, product-based, geographic)
5. Matrix org structure
6. Team-based org structure
7. Network org structure

At some point, you have likely seen an organizational chart for your company. And we can probably guess what it looked like.

The typical org chart looks like a pyramid, your C-level executives at the top with lines stretching down to middle management and finally staff-level employees.

But not every company functions best with a hierarchical organizational structure. Many types of organizational charts exist because many types of organizational structures exist. 

Let’s go through the seven common types of org structures and reasons why you might consider each of them.

1. Hierarchical org structure

The pyramid-shaped organizational chart we referred to earlier is known as a hierarchical org chart. It’s the most common type of organizational structure—the chain of command goes from the top (e.g., the CEO or manager) down (e.g., entry-level and low-level employees), and each employee has a supervisor. 

Pros    

• Better defines levels of authority and responsibility

• Shows who each person reports to or who to talk to about specific projects

• Motivates employees with clear career paths and chances for promotion     

• Gives each employee a specialty     

• Creates camaraderie between employees within the same department

Cons

• Can slow down innovation or important changes due to increased bureaucracy

• Can cause employees to act in interest of the department instead of the company as a whole

• Can make lower-level employees feel like they have less ownership and can’t express their ideas for the company

2. Functional org structure

Similar to a hierarchical organizational structure, a functional org structure starts with positions with the highest levels of responsibility at the top and goes down from there. Primarily, though, employees are organized according to their specific skills and their corresponding function in the company. Each separate department is managed independently. 

Pros

• Allows employees to focus on their role

• Encourages specialization

• Help teams and departments feel self-determined

• Is easily scalable in any sized company

Cons

• Can create silos within an organization

• Hampers interdepartmental communication

• Obscures processes and strategies for different markets or products in a company

3. Horizontal or flat org structure

A horizontal or flat organizational structure fits companies with few levels between upper management and staff-level employees. Many start-up businesses use a horizontal org structure before they grow large enough to build out different departments, but some organizations maintain this structure since it encourages less supervision and more involvement from all employees.

Pros    

• Gives employees more responsibility

• Fosters more open communication    

• Improves coordination and speed of implementing new ideas    

Cons

• Can create confusion since employees do not have a clear supervisor to report to

• Can produce employees with more generalized skills and knowledge

• Can be difficult to maintain once the company grows beyond start-up status

4. Divisional org structure

In divisional organizational structures, a company’s divisions have control over their own resources, essentially operating like their own company within the larger organization. Each division can have its own marketing team, sales team, IT team, etc. This structure works well for large companies as it empowers the various divisions to make decisions without everyone having to report to just a few executives. 

Depending on your organization’s focus, there are a few variations to consider.

Market-based divisional org structure

Divisions are separated by market, industry, or customer type. A large consumer goods company, like Target or Walmart, might separate its durable goods (clothing, electronics, furniture, etc.) from its food or logistics divisions. 

Product-based divisional org structure

Divisions are separated by product line. For example, a tech company might have a division dedicated to its cloud offerings, while the rest of the divisions focus on the different software offerings—e.g., Adobe and its creative suite of Illustrator, Photoshop, InDesign, etc.

Geographic divisional org structure

Divisions are separated by region, territories, or districts, offering more effective localization and logistics. Companies might establish satellite offices across the country or the globe in order to stay close to their customers.

Pros

• Helps large companies stay flexible 

• Allows for a quicker response to industry changes or customer needs

• Promotes independence, autonomy, and a customized approach

Cons

• Can easily lead to duplicate resources

• Can mean muddled or insufficient communication between the headquarters and its divisions

• Can result in a company competing with itself

5. Matrix org structure

A matrix organizational chart looks like a grid, and it shows cross-functional teams that form for special projects. For example, an engineer may regularly belong to the engineering department (led by an engineering director) but work on a temporary project (led by a project manager). The matrix org chart accounts for both of these roles and reporting relationships.

Pros

• Allows supervisors to easily choose individuals by the needs of a project

• Gives a more dynamic view of the organization

• Encourages employees to use their skills in various capacities aside from their original roles

Cons

• Presents a conflict between department managers and project managers

• Can change more frequently than other organizational chart types

6. Team-based org structure

It’ll come as no surprise that a team-based organizational structure groups employees according to (what else?) teams—think Scrum teams or tiger teams. A team organizational structure is meant to disrupt the traditional hierarchy, focusing more on problem-solving, cooperation, and giving employees more control.

Pros

• Increases productivity, performance, and transparency by breaking down silo mentality
• Promotes a growth mindset
• Changes the traditional career models by getting people to move laterally
• Values experience rather than seniority
• Requires minimal management
• Fits well with agile companies with Scrum or tiger teams

Cons

• Goes against many companies’ natural inclination of a purely hierarchical structure
• Might make promotional paths less clear for employees

See why forming tiger teams is a smart move for your organization.

Learn more

7. Network org structure

These days, few businesses have all their services under one roof, and juggling the multitudes of vendors, subcontractors, freelancers, offsite locations, and satellite offices can get confusing. A network organizational structure makes sense of the spread of resources. It can also describe an internal structure that focuses more on open communication and relationships rather than hierarchy.

Pros

• Visualizes the complex web of onsite and offsite relationships in companies
• Allows companies to be more flexible and agile
• Give more power to all employees to collaborate, take initiative, and make decisions
• Helps employees and stakeholders understand workflows and processes

Cons

• Can quickly become overly complex when dealing with lots of offsite processes
• Can make it more difficult for employees to know who has final say

Consider the needs of your organization, including the company culture that you want to develop, and choose one of these organizational structures.

Once you've chosen the right org structure to pursue, learn the steps in the company reorganization process.

Read more